Inventory - Setup and Maintenance Overview

Use the functions on the Setup and Maintenance menu for these tasks:

Setup and Maintenance menu functions

  • Use the Business Rules function to define application interfaces and general information about Inventory functions.
  • Use the Locations function to set up and maintain each location where you stock inventory.
  • Use the Transaction Batch Codes to group transactions so that you can make changes to transactions in one group without affecting those in another.
  • Use the Transfers Batch Codes to group transfers so that you can make changes to transfers in one group without affecting those in another.
  • Use the Sales Categories function to set up and maintain sales category codes used to sort historical information.
  • Use the Product Lines function to group similar inventory items.
  • Use the Account Codes function to assign accounts to items for posting to General Ledger.
  • Use the Pictures function to set up and maintain pictures of your inventory items.
  • Use the Price Breaks function to set up price breaks for your customers.
  • Use the Ship-To Addresses function to set up and maintain shipping addresses.
  • Use the Lot Numbers function to set up and maintain lot numbers for lotted items.
  • Use the Hazardous Material Codes set up to maintain hazardous material codes for use on the warehouse management bill of lading.
  • Use the Item Label Definitions function to create your item labels.
  • Use the Items function to set up and maintain your inventory items and to assign locations to your inventory items.
  • Use the Convert SM Items functions to convert System Manager items to inventory items.
  • Use the Copy Items to Locations function to copy all or a subset of items to a new location. You can select to copy a single item ID, product line, user-defined field, or a range of those options.

Before you can use the Inventory application, you must follow the setup procedures outlined below. Follow these procedures carefully, because the choices you make determine how the system operates. You can use the Inventory Setup Checklist to help you set up the Inventory application.

To set up the Inventory application, follow these steps:

  • Set Up Business Rules

    Use the Business Rules function on the Company Setup menu in System Manager to interface Inventory with General Ledger and Project or Job Costing and to select the history, periodic setup, and data entry options; the costing method to use; and the default general ledger account numbers.

  • Define and Organize Inventory Items

    Defining

    Many businesses have a variety of lotted, serialized, nonserialized, and service items.

    • Lotted items are items in a group that are identified by lot numbers. Examples of lotted items are perishable foods with an expiration date, and dyed materials.
    • Serialized items are large-ticket items, such as appliances, computers, and stereo equipment, that are identified by serial numbers.
    • Nonserialized items are regular inventory items.
    • Service items are tasks you perform for customers, such as service warranties and repair services. Service items track no quantities within the inventory system.

    Organizing

    Items in Inventory are identified by an item number and a description. You can also assign additional identification to an item: product line, location, bin number, status, vendor ID, unit of measure, serial number, and lot number values.

    In some Inventory report functions you can select the order in which the information is presented. For example, you can sort information in the Price Report by item ID or by location ID. Organize your inventory items with this information in mind.

  • Set Up IDs and Codes

    IDs and codes tell the system how to identify each item on file. The system uses these identifiers to organize information.

    When you assigned IDs and codes. establish a format that makes sense for your business and use it consistently. The following suggestions may help you to establish a useful format:

    • Do not use these characters in an ID or a code: | : ; & # @
    • To prevent organization problems, use zeros to make all IDs the same length. If IDs are divided into more than one part, the parts should be the same length in every ID. Do not use spaces to divide IDs into more than one part. For example, use ACE-01 and ACE-11 instead of ACE-1 and ACE-11 or ACE 01 and ACE 11.
    • If you use letters in IDs, use either all uppercase or all lowercase letters so that the IDs can be sorted correctly.
    • Use descriptive IDs. For example, WIN001 and WIN002 are more descriptive than 000001 and 000002.
    • If you want to sort items by a particular attribute - name or group - put the attribute in the ID. For example, to organize vendors by name, put the first characters of the vendor name in the vendor ID.
    • To ensure that new items can be inserted into a sequence, use a combination of letters and numbers that leaves room in the sequence for later additions. For example, WIN001 and WIN005 leave room for three IDs in between.

    Item IDs

    Item IDs identify items throughout Inventory and other Traverse applications. Items can have the same product line, location, and price ID, but not the same product line, location, price ID, and item ID.

    An alias is another name or ID for an item. For example, item 700873920PS has an alias of PS. When you enter PS in the Item ID field, the full item number is displayed and a message indicates that PS is an alias for item 700873920PS.

    Alternate items are comparable to or can be substituted for other items. An alternate item is used when you sell an item with insufficient quantities in inventory.

    Superseded items are replacements for items that are no longer available for purchase or sale. For example, item 700 (plumbing supplies) is no longer available from your vendor. Change the item status to superseded and enter item 100 (another brand of plumbing supplies) in the Supersede Item ID field. If you enter item 700 in a transaction, a message indicates that the item is superseded and asks whether you want to use the superseded item ID. If you select Yes, the system enters item 100 in the field.

    For more information about item IDs, see the Items function.

    Price IDs

    Price IDs are set up in the Price Structures function in Sales Order and identify a category of items used for pricing calculations. They can be assigned to an item and location in Inventory.

    Use letter codes for price IDs. For example, RAWMAT identifies raw materials. For more information about price IDs, see Sales Order.

    Vendor IDs

    Vendor IDs identify the suppliers of inventory items. For more information about vendor IDs, see the Items function.

    Location IDs

    Location IDs indicate where your inventory items are stored. The location can be a physical location such as a warehouse or a defined location in a storage unit. For more information about location IDs, see the Locations function.

    Sales Categories

    Sales categories are used to sort historical information like detail sales history from Accounts Receivable. They identify the market you sell groups of items to and help you analyze sales. For more information about sales categories, see the Sales Categories function.

    Product Lines

    Product lines categorize your inventory into groups of similar items. For more information about product lines, see the Product Lines function.

    Account Codes

    Use account codes to assign default general ledger accounts to be used when you post sales, purchase, transfers, adjustments, and physical counts to General Ledger. Account codes are also used when an item is sold or returned through Accounts Receivable or purchased or returned through Accounts Payable.

    Assigned an account code to an item on the Items screen. For more information about account codes, see the Account Codes function.

    Picture IDs

    Picture IDs are used to maintain pictures of inventory items. For more information about picture IDs, see the Pictures function.

    Break IDs

    Price break IDs identify increasing discounts for customers as the quantity of sales to them increases. For example, you can set up a price break ID that gives a 1 percent discount on purchases of 10 items, a 2 percent discount on purchases of 20 items, and a 3 percent discount on purchases of 30 items or more.

    For more information about break IDs, see the Price Breaks function.

  • Enter Initial Balances

    Use the detail method to enter purchase and sales transaction information for your items. This method updates summary and detail history in Inventory.

    Use the Transactions function in Accounts Receivable/Sales Order to enter customer information and save the corresponding history. Use the Transactions function in Accounts Payable/Purchase Order to enter vendor information and save the corresponding history.

    1. In the Items function:
      • Use the Item tab to enter Item IDs and all other required and important information.
      • Use the Location tab to set up locations and general, cost, and price adjustment information for each item ID you entered on the Items screen.
      • In the Costs section of the Location tab, enter the average, last, and base cost; enter the standard cost if you are using the standard costing method.
    2. In the Inventory Transactions function:
      • On the Purchase tab, enter any purchase transactions.
      • On the Sale tab, enter any sales transactions.
      • If necessary, on the Adjustment tab, enter any adjustment transactions.
    3. In the Post Transactions function, post the transactions you entered in the previous steps.

    1. Freeze Quantities

      Use the Freeze Quantities function to create a batch code, to select the data to include in the batch, to prepare the batch, and to freeze on-hand quantities in the batch before you begin the physical count process. Do not freeze quantities until all the adjustments to items are made. You can not have an item in a location in multiple batches. For example if you selected item 100 from MN0001 in batch 1 and then select 100 from MN0001 for batch 2. You will get a message when you prepare batch 2 that item 100 is already in a batch.

    2. Print Inventory Tags/Worksheets

      Use the Print Inventory Tags or Print Inventory Worksheets function on the Physical Inventory menu to print tags or worksheets for the physical count process. You can print tags or worksheets for any batch prepared. Both menu selections will display all batches to print either tags or worksheets.

      If you use worksheets to record the physical count of your inventory, use this function to print them. Lines on the worksheet can be printed by item, location or product line in the order you select them.

      If you use tags to record the physical count of your inventory, use this function to print them. Lines on the worksheet can be printed by item, location, bin, container or product line in the order you select them.

    3. Physical Count Entry

      Use the Physical Counts Entry function record physical counts. Lines on the screen are sorted by item, location, bin and product line in the order you selected on the Print Inventory Tags or Print Worksheets screen for the batch selected.

      The current batch is locked while you enter physical counts to prevent other users from editing the batch and from selecting the batch to update perpetual inventory.

      Before you use this function, freeze quantities for the batch and use the Print Inventory Tags or Print Worksheets function to print tags or worksheets for the batch.

      Import Physical Counts: Use the Import function on the IN Physical Counts Entry screen to use the file format you created using the Integration Engine to import data from a data collection device to log physical inventory counts in Traverse. For more information on data imports, read the Data Import Tutorial in the Traverse Knowledge Base.

    4. Physical Counts List

      After you enter physical counts, produce a list of quantities from selected batches to verify that the correct quantities are entered.

      1. Use the print preview button in the Physical Counts Entry screen to preview and print the list.
      2. Check the Show Exceptions box to include only the inventory items with a variance between the frozen and counted quantities in the list; otherwise, clear the box.
      3. Select the Print button on the previewed report to output the report to a printer.

    5. Variance Report

      After you enter and verify the physical count of your inventory, produce the Variance Report. It shows the difference between the counts you entered and the frozen quantities in the system. Variances are expressed as a quantity and a dollar amount that is based on your inventory valuation method.

      You must print the Variance Report to a printer or a file before using the Update Perpetual Inventory function.

    6. Physical Counts Valuation Report

      The Physical Count Valuation Report function on the Physical Inventory menu details the items and quantities frozen in each physical count batch, the value of those items before and after the physical count, and the variance, if any.

      After you have entered and verified physical counts, use the Physical Counts Valuation Report to detail the items and quantities frozen in each physical count batch, the value of those items before and after the physical count, and the variance, if any.

    7. Use the Update Perpetual Inventory function to update on-hand item quantities by the difference between the frozen quantity and the physical counts you entered, and the month- and year-to-date COGS adjustments by the variance amounts.

      The variance amounts are based on the inventory valuation method you use. If you use the LIFO or the FIFO method and no cost is available (for example, because the item has no on-hand quantity), the system updates the COGS adjustment amounts by the average cost of the item.

      If Inventory is interfaced with General Ledger and you elect to post the variance amount to GL, entries are made to the inventory adjustment and physical count adjustment accounts:

      Variance: increase in inventory

      Account Entry
      IN Adjustment Debit
      Physical Count Adjustment Credit

      Variance: decrease in inventory

      Account Entry
      IN Adjustment Credit
      Physical Count Adjustment Debit

      If Inventory is not interfaced with General Ledger, use the Update Perpetual Inventory Log to manually adjust the accounts affected by this function.

      NOTE: Normal accounting procedures suggest doing manual adjusting entries to reverse your physical count adjustment amounts out of your inventory adjustments account, and put the corresponding entry to your inventory account for the items that have had a quantity change. This will result in the true value of your inventory, reflected in your inventory account.

  • Select Costing Methods and Units of Measure

    Costing Methods

    You must select a costing method for your items in the Miscellaneous section in the Business Rules function.

    The FIFO (first-in, first-out) method uses the oldest items in inventory as the basis for costing sales and inventory. FIFO allocates the oldest unit costs to the cost of goods sold and the most recent unit costs to the ending inventory. When costs rise, the FIFO method yields the highest net income; when costs fall, the FIFO method yields the lowest net income.

    The LIFO (last-in, first-out) method uses the last items brought into inventory as the basis for costing sales and inventory. When costs of inventory items rise, the LIFO method yields the lowest net income; when inventory item costs fall, the LIFO method yields the highest net income. LIFO is often preferred when prices rise because it results in a lower pretax income and a lower tax obligation.

    The average cost method calculates a weighted average cost over time. See the IN Cost Adjustments Knowledge Base article for more information.

    The standard cost method is an estimate of costs that you set. For example, in a manufacturing operation the standard cost is the cost of the item plus costs of raw materials, labor, and overhead.

    Units of Measure

    You can assign an item a default unit of measure, unlimited alternate units of measure, conversion factors, and penalties. The base unit of measure must be your smallest unit of measure, and conversion factors can not be less than one.

    NOTE: You cannot change your base unit of measure if quantities are on file.

    If the smallest unit of measure is EACH, you might use the following alternate units: a BOX of 10, a PKG of 100, a CARTN of 500, and a CASE of 1000.

    The conversion factor is the portion of the base unit that is the alternate unit. In the previous example you would enter the units with the following conversion factors:

    Unit Conversion Factor
    EACH 1.00
    BOX 10.00
    PKG 100.00
    CARTN 500.00
    CASE 1000.00

    The base unit of measure is EACH, but you can set up BOX as the default unit of measure if you sell the item most often in boxes.

    Make sure that your base unit of measure is set up. Then enter each unit of measure and a conversion factor for each unit of measure.

  • Prepare Workflow

    Preparing your work flow enables you to establish consistent daily and periodic routines.

    Daily Tasks

    Do the following tasks daily or as often as you need to keep your inventory up to date:

    ____ Add items

    ____ Enter transactions if you don’t use AR/SO and AP/PO to enter your sale and purchase transactions.

    ____ Enter location transfers.

    ____ Back up your Company’s database (using Server Manager, see the Administrator’s Guide for more information).

    ____ Produce a Transaction Journal.

    ____ Produce a Transfers Journal.

    ____ Post transactions.

    ____ Post transfers.

    Periodic Tasks

    Do the following tasks periodically for Inventory:

    ____ Freeze quantities.

    ____ Print physical inventory tags and worksheets.

    ____ Enter the physical count.

    ____ Produce a Batch List.

    ____ Produce a Physical Counts List.

    ____ Produce a Variance Report.

    ____ Produce a Physical Counts Valuation Report.

    ____ Update perpetual inventory.

    ____ Change the price of items.

    ____ Change the standard or base cost of items.

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