Authored by our premium expert partner, Cloud Integr8
Your inventory and accounting systems are up and running and everything is going swimmingly. You’re addressing operational challenges and your inventory and accounting systems seem to be running well. Everyone on the team is fulfilling their roles and capturing their data. No one is complaining or flagging any issues. “No news is good news”, right?
Well, yes and no. We usually don’t know what we don’t know. In this article we’ll walk you through how to run a health check on your inventory and accounting systems, and how to use that information to correct any mistakes you find and avoid making them in the future.
At Cloud Integr8 we normally notice issues when performing a system review for a client. It might be during stock take where unexpected variances in stock numbers appear. Or, an issue can be discovered while looking at an Income Statement for the month and we see that the Gross Profit percentage looks wrong. It can even occur when a customer or supplier contacts our client to say that their statement doesn’t match the client’s.
Once we know that something is wrong, we can look to fix it and to find ways to prevent it from happening again. But what about the things we are not looking at, that are flying under the radar? And how are these impacting a business’s data behind the scenes?
he beauty of a complete end-to-end inventory system like Cin7 is that it closes the loops that exist in an open system like Excel. Everything is tracked, and there is a logic to the system. The challenge with a complete system is that there are multiple ways to set it up to give you the processes that you want, as well as the reports needed to track the health and growth of the business. As you know, your business – like every other business – has its own unique needs.
One of the best ways to utilize an inventory management system like Cin7 is to map out all dimensions of your business. At CloudIntegr8, we typically establish this through a formal scoping process. This way we can iron out any workflow issues and agree on the best workflow for each business element before setting up an inventory management system like Cin7 to support this. If you have never done a scoping process or if yours is outdated, go ahead and do this internally, or engage a Cin7 partner like ourselves to do this with you.
Because all data points captured into Cin7 are linked to other data points directly, there is a cascading movement of data between data points. This allows for the power of the system to provide detailed reports. If certain data points get captured incorrectly or incompletely, the cascading happens quickly and can have negative effects on your data. The trick is to catch those as quickly as possible, understand them, and then fix them.
Let’s look at two real life examples that we have seen with our clients via our month end system audit reports service.
This client manufactures high quality cables for the electronics and mining sectors. They consume a few hundred tons of copper a month. They have Bills of Materials (BOMs) in place that accurately track the costs of each cable batch they produce. In one particular month, based on a stock take, they identified a production that was captured by one of their team in their Cin7 Core account that had not been produced yet. The employee selected a large number of this SKU and proceeded to perform a disassembly.
However, what many people don’t know is that when disassembling, the system does not know what the cost of each component of that BOM should be. During the disassembly process there is a way to manually manage this, but the default disassembly will break the SKU down into its correct BOM components but will allocate the costs equally across all of the components.
The copper was now significantly undervalued, which was not detected. A large amount of copper was then transferred to a different location, taking the lower cost with it. It was used in a large production at this location, and then sold and shipped to a client within two weeks. The average cost of the finished product was now significantly less than it should be.
Because the stock was sold and dispatched before the issue was identified by anyone on their team, the fix was more complex than a simple undo and redo. When there are long stretches of time before a system health check is performed, you can see how the cascading effect of a simple process quickly affects multiple touch points through the system.
To illustrate another cascading impact consider the adjustment of 100 of a high value SKUs following a stock count. The user adjusts the number of this SKU back into the system but accidentally leaves the value as $0.00 rather than adhering to the company policy and inputting the average cost. The item now appears in stock with the correct number of units.
That adjusted raw material SKU is now used in six different BOMs to produce six different new SKUs during Productions in the following three weeks. One of these new SKUs is used in a BOM to produce another product. Some are sold and shipped to clients, some are transferred to a new location, and some remain where they are. In each instance the cost price is incorrect.
The sold and shipped items now form part of the cost of sales for that month, artificially inflating the Gross Profit percentage due to the artificially lowered price.
Here are some of the ways to reduce the number of potential processing errors.
Here are some of the key areas we cover in our monthly client audit reports that we offer on a recurring basis to our clients around the world:
Based on the findings in the above, you should identify who needs training or support to avoid these errors going forward. You should check the errors identified in last month’s report to see if they were resolved.