The role of accounting in Management

8. Inventory

The inventory of a company are the raw materials, any work-in-progress, as well as finished goods. It may also include merchandise materials that are kept in storage for regular or later use.

It is advisable for any business not to bind up too much cash in inventory items, but to ensure a fast and regular turnover. To manage the inventory efficiently it is important to have accurate sales forecasts, lean and secure supply chains and a good overview of inventory items in stock. Long storage times can lead to spoilage, high storage costs or even loss of value, in case an inventory item becomes obsolete.

In food industries inventory items (and also often supplies) are managed following the FIFO system (First in- first out), to ensure the freshness of the product. This means any item that was stocked earliest, is the first to be used up, processed or sold.

Software-based inventory systems can also be based on expiry dates of items and raise alerts, when an item is near it's best before date.

In any case, inventory items need to be identifyable to be able to manage their use efficiently. Items that are going through processing also need to be identifyable throughout the entire process for reasons of tracebility. Therefore, each item should receive a unique or batch number when entering the system. This can be starting at farm level or at facility gate level. Batch numbers should be able to identify the source, from which the item was received (supplier code), the item itself (item code), the date it was received (or sequencial number that indicates the order of receipt) and the location at which the item is kept (e.g. warehouse number, warehouse table/shelve, cold storage chamber, crate number, etc.)

Example: 02-12-22/F005/S338/CC3-CR24

Date received: 2nd December 2022

Item code: F005 = Fruit - mangoes

Supplier code: S338 = Senegal - Ammadou Diallo

Holding info: CC3 = cold chamber no. 3; CR24 = crate no. 24

This can be printed as a QR code and attached to the crate:

with a simple QR-code scanner on a mobile device the information in the code can be easily retrieved. This batch number or QR-code stays with the product throught the processing steps and even when the finished product is sold.

In your inventory ledgers this information would appear as follows:

1. on receipt: