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Requirements – Inventory Management System (IM)

Blog: Biz-Performance, David Brown

Requirements – Inventory Management System (IM)


The daily processing of inventory transactions is carried out by the Inventory Management System (IMS). As an output, it generates the regular replenishment orders. The Inventory Control System (ICS) is the means for processing transactions which maintain part status files. The usual input transactions include demand, issues, and receipts which are posted as:
  • Quantity on hand
  • Quantity on order
  • Quantity in process
  • Backlog of unfilled demand
  • Available stock
  • Committed stock.
The ordering decisions for stock keeping units are governed by a pair of control numbers, order point and order quantity, which are periodically revised. The decision on when to order is determined in one of three ways. The first method is to compare the available stock to an order point. If the stock is less than or equal to the order point, an order is generated. In the second basic method of ordering, replenishment orders are generated at regular intervals. A third method is requirements generated by MRP.
Information flow within the ICS must be accurate and timely. Audit trails must be clearly established in order to trace and correct problems. Management reports must provide the associate inventories with costs and customer service level.
The inventory control function provides the information to drive most other manufacturing applications. It is the hub of the firm’s activities as well as the sponge that soaks up the problems of all department. Interaction is required with purchasing, receiving, inspection, production, sales, accounting and shipping.

Location Control

  • Maintain multiple locations for the same item, including:
    • Multi-plant
    • Multi-warehouse
    • Multi-warehouse areas (zones)
    • Row designator
    • Aisle designator
    • Shelf designator
    • Bin designator
    • User defined location scheme
  • Identify a specific location within a stockroom/warehouse and work center for each item and require stocking in that location
  • Create item inventory locations when/as required for random location control

Perpetual Inventory

  • Provide the following inventory valuation methods:
    • LIFO (Last In First Out)
    • FIFO (First In First Out)
    • Standard
    • Current
    • Actual
    • Average
  • Process all stock transactions online
  • Ability for a transaction type/reason code and description to be included in all inventory adjustment transactions
  • Accumulate shipment, issue, and receipt transaction history by item
  • Maintain the date of last shipment, issue, and receipt
  • Accumulate inventory transactions and provide a reconciliation between the quantity on hand at the beginning and the end of the designated time period
  • Ability for online edit of part number, GL and work order accounts on all issues, receipts, adjustments and returns to stock
  • Provide audit trails that will provide enough information to trace the flow of all transactions
  • Recall all transaction activity on an item for a defined time interval
  • Display online inventory information, both summary and detail, by produce line or product code
  • Maintain inventory data for several warehouses, and several bay locations within a warehouse for the same item
  • Accumulate the following year-to-date, period-to-date, and period-to-period information by part:
    • Receipts
    • Issues
    • Scrap
    • Shipments
    • Return to vendor
    • Adjustments
  • Provide inventory availability status codes:
    • Available
    • Allocated
    • Not available (MRB)
  • Compute average item usage
  • Maintain inventory by condition code (e.g. serviceable, repairable, condemned, etc.)
  • Classify inventory items as excess and obsolete
  • Restrict one stockroom location from entering transactions that affect inventory records at another stockroom

Cycle/Physical Counting

  • Assist in physical inventories and cycle counting through:
    • Generation of tags and tag control list
    • Extension of physical counts and production of variance reports in units and dollars
    • Updating the perpetual record with the actual count
    • Using the features of the physical inventory system for cycle counting
    • Using the system to identify which parts should be counted (by ABC code), and report summary and detail of the cycle count adjustment in dollars and units
    • Generate a cycle count variance report by stockroom
    • Designate counts distinct to a stockroom where multiple stockrooms may exist within one plant
    • Designate counts distinct to an inventory location where a part may exist within multiple stockroom locations
  • Specify cycle count frequencies by ABC code
  • Generate automatic cycle count request for part/locations with negative on-hand balances

Production Support

  • Ability for online inquiry to determine availability of items. This should include the following information:
    • Quantity on-hand
    • Quantity allocated-pegged to work order number
    • Quantity available after commitments
    • Quantity on order by P.O. number and due dates – multiple deliveries
    • Quantity on open P.O. in return to vendor status
    • Quantity in Receiving Inspection by location
    • Quantity in MRB (Hold) location
    • Quantity on order by work order number
  • Maintain a perpetual on order quantity by part number
  • Maintain committed quantity information for
    • Sales orders
    • Work orders
    • Purchase orders
  • Maintain a reorder point and recommended order quantity in the inventory master file(s)
  • Maintain trace source (identifying both vendor and lot serial number), especially when several vendors can supply the same item, by:
    • Lot Control
    • Serial Number Control
  • Track back ordered or shortage items by:
    • Work order
    • Purchase order
  • Calculate reorder point and economic order quantity on basis of:
    • Item usage
    • Firm demand
  • Accommodate and control:
    • Parts on consignment at vendor
    • Substitute parts
    • Parts sent outside for processing
    • Parts returned to vendor
  • Provide visibility of work-on-process inventory at vendor locations
  • Produce ABC analysis based on:
    • Item usage
    • Firm demand
  • Translate shop order material requirements into an accurate material picklist
  • Provide for specific customer allocation on finished goods material
  • Track rework, scrap, MRB and return to vendor (RTV) material in inventory
  • Print pick list, and/or B.O.M. structure, and:
    • Generate a shortage report from original pull sorted by order number
    • Automatically fill pick list shortages, exception report to be issued when material is available
    • Measure performance based on number of shortages as percent of items picked
    • Make unplanned issues and receipts to/from valid work orders or GL account
  • Issue and track material to outside contractors on an inhouse work order without double counting by purchase order
  • Track and control interplant transfer via transfer order and identify intransit material status
  • Do soft (phantom) pulls to evaluate “what if” production situations and identify potential component shortages
  • Interface with automated data collection (bar code) devices to process inventory transactions in a real-time environment
  • Create an automatic backorder if required material is not in stock
  • Override or delete a backorder by individual item
  • Provide work order status visibility:
    • Allocated: complete
    • Allocated: shortage
    • Picked: complete
    • Picked: shortage
  • Report part shortages by work order and assembly part number
  • Define non-nettable (unavailable for MRP use or allocation) locations for a part

Parts Master

  • Maintain a part current revision field (for “make” parts it should be controlled by the BOM module)
  • Maintain a part status flag (e.g., released, not released, obsolete, in ECO review, etc.)
  • Maintain part configuration references:
    • Engineering drawing number
    • Engineering drawing revision
    • Engineer responsible
    • Create date
    • Release date
    • Obsolete date
    • Effectively date
    • Effectively serial number
  • Maintain various item inventory control parameters:
    • Serial number control required (Yes/No)
    • Lot number control required (Yes/No)
  • Maintain an End Item Configuration field to facilitate cross referencing between end item part configuration number and allowable item number configurations. NOTE: End Item Configuration Field may relate to the next higher Configuration Item (CI) level
  • Display/report for a part number the quantities on hand, allocated/reserved and on order for change impact analysis

Cost Requirements

  • Maintain inventory value on:
    • LIFO
    • FIFO
    • Average cost
    • Standard cost
  • Maintain latest cost field
  • Identify excess and obsolete
  • Tie outside contractor invoices to a specific work order for cost analysis
  • Compute average item cost
  • Interface with the GL accounts for all inventory transactions – issues, receipts, scrap, MRP and return to vendor, etc.

Item Master

  • Interactively enter part master information
  • Maintain the following part master data elements for each item
    • Item number
    • Description
    • Commodity code
    • ABC code
    • Planning code (make/buy)
    • Item status
    • Inventory account
    • Revision level
    • Drawing number
    • Drawing revision
    • Unit weight
    • Safety stock
    • Reorder point
    • Economic order quantity
    • Size/volume
    • Buyer code
    • Order policy code
    • Standard cost
    • Date last update
    • Planner code
    • Date last issue
  • Cross reference qualified vendor information to each purchased part of subassembly by:
    • Vendor number
    • Vendor name
    • Vendor part number
    • Manufacturers’ part number
  • Accommodate different purchase and issue unitsofmeasure for an item, automatically convert and convert from one to the other
  • Inquire to the Item Master file based on material description or portion of a description


  • Provide stock status inquiry by part number to include all that is on item master:
    • Location
    • Lot number
    • Last activity date
    • Last cycle count date
    • Usage history ($2 months)
    • Commodity code
    • Product line
    • Quantities in all locations
    • Quantity in WIP
  • Provide inquiry to static item master elements by relation to function:
    • Engineering related data
    • Purchasing related data
    • Planning related data
    • Location related data
    • Sales related data
    • Quality related data


  • Stock Status Report – Printed in item number sequence or by product code, indicating onhand quantity, unit costs and extended values
  • Inventory Transaction Report – Printed for a userspecified time period (daily, weekly, last week, monthly, etc.), by item number, by transaction type, by location, to provide a reconciliation between the onhand balance at the beginning of the month and end of the month and an audit trail of transactions
  • Inventory Master File Listing – Printed as required showing the contents of the inventory item master file records
  • Obsolete/Slow Moving Item Report – Printed as required, shows all items with no activity after a predetermined date or within a specified number of days
  • Suggested Purchases Report – Printed as required, shows all order point planned items with an onhand quantity equal to or less than the reorder point. Any outstanding purchase orders for the items appear on the report with the expected delivery date
  • Daily Purchase Order Shortage Report – This report will show all receivers where the quantity received was less than the quantity ordered
  • Cycle Count Report – This report lists, both for raw material and finished goods, by date counted and part number, the unit of measure, inventory location, actual count, adjustment amount, quantity variance, percent variance, standard cost and standard dollar variance
  • Inventory Movement Report – This report lists both for issues and receipts, by GL account number and by part number, the date issued/received, standard unit cost and extended standard cost
  • Monthly Issues – This report lists by using organization (work center) and part number all material issued
  • Order Shortage Report – Printed as required by order number, showing all components necessary to complete that order and their issue status, highlighting items that appear to have an inadequate onhand inventory (issued short)
  • Item Shortage Report – Lists all items where the onhand inventory is inadequate to service orders, listing the item, the order(s) associated, and quantities involved
  • Work Center Inventory Report – Printed as required by work center and item number showing all orders and components at each work center with the quantity at each and a quantity summary
  • Location Status – Printed as required in location sequence listing the items (in item sequence) at that location together with quantities of each item typically used during physical inventory
  • Material Picklists – Lists by work order number all BOM components required and todate issue quantities by stock number. The picklist can be reprinted for the work order or work order/operation showing the total required, total issued, and remaining required quantities
  • Scrap Report – Printed upon request, this report lists scrap activity by part number on both a monthly and a rolling sixmonth summary basis
  • Price List – Printed as required. The report shows the base selling prices or a computed price of each item
  • Cycle Count Adjustments – Lists all cycle count adjustment transactions within a specified data range. It indicates by stock number and bin number the adjusted onhand balance, adjustment quantity (+ or –)adjusted costs (+ or –) and adjustment date and time
  • Daily Cycle County List – Lists all of the stock numbers and bins to be counted on the given day as determined by the cycle counting system. In addition, it will include all stock numbers and bins with negative inventory balances
  • ABC Stratification Analysis – Lists in descending value order all stock numbers within the stockroom. The value equals the item cost times the last four quarter (annual) usage. This report is used to update the item ABC code
  • Daily Shipping Report – Lists by product line the item quantity and dollar shipments for the current day
  • Physical Inventory Control – This is a series of reports and tags used to support physical inventory. The reporting includes:
    • Inventory Count Tags – One tag for every bin number and stock number combination
    • Inventory Audit Tags – Tags for audits or recounts of selected bin and stock number combinations
    • Inventory Count Tag Control List – List containing every tag number, bin number, stock number, and the current system onhand balance
    • Physical Inventory Valuation – List valuing the physical inventory counts, count variances and the system onhand balance by tag number. It flags outofbounds adjustment variances and produces audit tags
    • Physical Inventory Adjustments – Lists and values all physical inventory count adjustments posted
  • Part Usage History Analysis – It includes by stock number in bucketed format the previous two years usage, past quarters’ usage, current quarters’ usage, average monthly usage, and smoothed monthly usage
  • Daily Exception Report – Lists a variety of status information for unplanned issues, unplanned receipts, cycle count activity, work orders to be closed, etc
  • WIP Location Inventory Report – Lists all parts currently located at each WIP location by part number, with associated quantities
  • WIP Location Transfers – Lists all transactions of inventory between Stores locations and WIP locations for a stated time-frame


  • Pick List – with ability to:
    • Pick single order, by item or bin location
    • Pick multiple orders by bin location
    • Change quantities picked
    • Change item numbers being issued to alternate item numbers
    • Scan bar code for pick list data for inventory issues
  • Cycle Count Document
  • Bar Code Labels


  • Order Entry/Invoicing – Onhand quantity, committed quantity, current period and yeartodate cumulative shipments are updated as items are ordered and invoiced. Much of the information related to items (e.g., price, description, cost, etc.) will be obtained from the inventory master record. Finished goods inventory is relieved as items are shipped
  • Cost Accounting – The value of inventory items is calculated by extending the inventory quantity by designated costing methods. The accumulated job costs are automatically relieved by cost element, based on receipts from production, adjustments, issues and return to vendor transactions
  • Purchasing – The onorder quantity, last purchase price, and last purchase date fields are updated through the entry and maintenance of purchase orders. Receipts into inventory update the open purchase order file

  • General Ledger – The GL inventory accounts are updated as a result of inventory receipts, physical inventory adjustment, issue to work order, receipts from production, scrap and return to vendor transactions
  • Bill of Material – Bills of material must be interfaced with the item master file in order to obtain unique part information to prepare costed bills of material and to prepare material picklists
  • Material Requirements Planning – The inventory status and unique part information (e.g., lead times of all planned items) will be used in calculating the MRP end requirements
  • Work Orders -Work orders must be interfaced with the item stockroom balances in order to process material picklists and maintain shortages
  • Shop Floor Control System – As a work order flows through manufacturing, information is needed on order status, work center and stockroom inventories, and order shortages
  • Shipping – Finished goods inventory is relieved as items are shipped


  • Number of items
  • Average number of inventory locations per item
  • Number of product lines (for purchasing and inventory purposes)
  • Number of warehouses/stockrooms
  • Number of issue transactions per day
  • Average work order and purchase order assembly receipts to stock per day
  • Average purchase receipts to stock per day
  • Average number of shipments per day
  • Average number of inventory adjustments per day
  • Number of stock transfers per month
  • Average number of MRB transactions per month

Key Fields

  • Item number
  • Item description
  • Unit cost and latest unit cost
  • Unit of measure (multiple)
  • Onhand quantity
  • Committed quantity
  • Onorder quantity
  • Period and yeartodate shipment, receipt and issue quantities
  • Unit price (multiple)
  • Lead time (days)
  • Order policy
  • ABC code
  • Order point
  • Make/buy code
  • Lot number (serial number)
  • Vendor/customer part number
  • Location
  • Warehouse

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