Inventory Costing for Distributed Warehouses

by Selecting Warehouse Group and Costing Method

Hill Sharma (希爾~夏爾馬) is an inventory specialist. He is working on self-employed basis helping many organisations to improve inventory management.

Following are key items of his CV: –

Designing customised model of economic order quantity

Implementing RFID inventory tracking systems for mobility of warehouse

Building alert systems for different kinds of fresh food operations

Drafting policy of inventory management pyramid for listed companies

Inventory holding cost appraisal for high-value fashion retail operations

Inventory costing models for management accounting – FIFO, LIFO, Average and LOT

Implementing costing models for different grouping of warehouses

He is invited for an information sharing gathering at a warehouse of one of his clients.

Valley: Good Evening, Hill. I am Valley.

Hill: Good Evening.

Valley: I would like to learn more about your experience in respect of inventory management.

Hill: Why do you want to learn inventory management?

Valley: I want to design better software for end-users to support accounting for inventories.

Hill: This means you have knowledge of inventory management. What specific areas of inventory management you want to learn?

Valley: I feel interested on your published CV on the professional network. Every item I want to learn. However, firstly, want to know why your clients they do not request their software vendors to solve the problems?

Hill: Seem you feel interested in me more than inventory.

Valley: Certainly.

Hill: Most ERP and related software are not perfect for my clients. You can be assuming that I play a role as System Integrator, but I do not execute the integration work directly. Mainly I will review their existing problems, and evaluate any room to propose integration solution. Some integration solutions in fact merely I provide them with a financial model in Excel file with embedded MACRO, other integration solution I suggest clients implementing particular software with their existing ERP environment.

Valley: What project you think most difficult to tackle?

Hill: In fact, all projects are always difficult to tackle because of either poor implementation of software or selected unmatched software. However, you may surprise that inventory management solutions for finance department are relatively more difficult. Also, these cases are fascinating.

Valley: I understand to handle accounting issues for multinational companies are not always easy, but I am surprised that accounting cases are fascinating. Why?

Hill: There are many unexpected problems encountered by some multinational companies.

Valley: Could you give me examples?

Hill: A first example is users believe that it is not possible to eliminate of inter-co unrealised profits of unsold inventory.

Valley: How can you solve?

Hill: The key issue is missing column of contractual parties within an inventory ledger. So there is no way to identify unsold inventory which is purchased from inter-company.

Valley: How can you rectify the missing column?

Hill: It depends on case by case basis. The simplex scenario is about configuring their existing system. The complex case is about implement a third-party data transformation tool to fix the problem.

Valley: What is the maximum number of distinctive issues per one client?

Hill: I afraid one client suffer from so many problems.

Valley: Why? You can earn more money from such client.

Hill: I concern I become as if an employee of the particular client. I am an Inventory Doctor; I want to take care more inventory patients.

Valley: How do you handle such client?

Hill: I will recommend solving few inventory issues. Let my client consider suggesting their priority.

Valley: What is their top 3 priorities?

Hill: It depends on case by case basis. However, most customers concern accounting for inventories because of compliance issues.

compliance crossword puzzle

Valley: What is the compliance issues?

Hill: This is about to comply with IAS 2 Inventories without affecting their existing operations. e.g. Performance management for employees, customers and products.

Valley: Is IAS 2 tough to apply?

Hill: Mainly sizable companies they have many warehouses, frequent cross-border stock transfer, different systems and a particular class of inventories – precious metals.

Valley: Which one you prefer to solve as highest priority?

Hill: I told you before I will request my client to suggest their priorities. Of course, if they have no idea, I prefer to handle precious metals – about recommend software capable to process mass volume of fair value adjustments. Secondly, issues of multi-warehouse in most case are about the recalculation of inventory cost by any one of costing methods based on user-defined grouping of the warehouse. I will recommend them to implement particular business intelligence software plus my well-developed scripting.

Valley: Any calculation error of their existing calculation model?

Hill: It is due to performance management is measured on the performance of the business unit, so financial close is a focus on the individual business unit. However, a legal entity can have many business units, the sum of inventory balances for different business units cannot comply with the rule of either FIFO or Average Costing methods of IAS 2 when different business units they are selling some common stock items. Also, my client prefers using LIFO for measuring performance to absorb the inflation within cost of product sold for the purpose of calculating sales commission.

Valley: How can you develop scripting?

Hill: It is an Excel macro from the very beginning. Due to performance issues and users they are demand for multi-user environments, I redevelop the macro using one of most flexible business intelligence software.

Valley: What is the name of the business intelligence software?

Hill: Any business intelligence software can support flexible and powerful scripting I can consider.

Valley: Can you consider our Conso 123?

Hill: Sorry, I do not know about your software, it seems an accounting software. Is it merely a new version of FlexAccount?

Valley: Absolutely not. We developed the software starting from a blank code page based on our experiences of EIQX, FlexAccount and FESA Consol.

Hill: Would you tell me any more distinctive features you think your software can support me to entertain more cases.

Valley: Firstly, you can use Excel Workbook as an editor for designing your scripting. Secondly, the system has built-in four different types of inventory costing model. Thirdly, in fact, it is not only an accounting software for multinational but also can be working as a business intelligence software – high performance of building multi-dimension of data cubes for data visualisation. Finally, we plan to explore further development – to support to design business game.

Hill: Your claimed features I never aware within the software industry. I will give you some case studies, to evaluate whether your software can provide a solution by using the scripting by so-called Excel Workbook.

Valley: No problem. I will wait to receive your case studies.

Hill: Seem we shall go sleeping.

Valley: No problem. Thanks for your valuable discussion.

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