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Inventory Accuracy - Control Negative Inventory

Negative inventory occurs when over consumption/issue happens from a location as compared to its actual on-hand quantity. This can happen because of many reasons like - Error in Bills of Material Maintenance, over reporting of Scrap and Production Quantities, wrong UOM Conversions, Delayed Transfer to transacting location, wrong Counting Transactions etc. Although it is a temporary phenomenon, its impact is more significant mainly in Planning and Inventory valuation reporting. Negative inventory acts as a demand for planning engine resulting in inaccurate inventory value statement.


For a Manufacturing Organization, not allowing negative transactions can stall the Production Line, even though material is physically available, thereby impacting Finished Good Reporting, Schedule Attainment, Line stoppage and Customer order fulfillment etc. On the other hand if we allow negative, we may hide many pertinent problems which will remain uncaught and then passing the onus to cycle counter/inventory controller to run around in finding the reason and fixing it. It gets more complex when organization has complex Product Structure and complex warehousing operations.


But, Yes - I intend to say that maintaining Inventory accuracy is as important as ensuring uninterrupted production. Since Oracle does not have a solution to allow Negative for some items (ex. Low value items), so we are left with following options, and mixed mode approach is one of the best suited solution for manufacturing organizations. We should weigh each option and assess organization's preparedness adopt on of these.


Option

Pros

Cons

Do not Allow Negative

Root Cause can be analyzed and fixed

 

Accurate and reliable Inventory Reporting and Planning

Can potentially stop Production Line and affect schedule attainment KPIs.

 

Root Cause Analysis may take longer time and can cause significant disruption to the Production Line

Allow Negative

No Interruption of production as back flushing can drive inventory negative indefinitely

No detection and control over the erroneous transactions or erroneous data.

 

Difficult to detect the root cause as the time progresses.

 

Data is not reliable for Inventory reporting and planning.

Mixed Mode

(Allow Negative During Back flushing)

Production can go smooth till inventory goes negative at the Organization level. i.e Back flushing happens from the Lineside sub inventory till total on-hand at organization level goes negative.

 

Inventory reporting and planning at the organization level is accurate and reliable.

 

In a case where back flush is not allowed because of the total inventory going negative, root cause analysis should be done quickly. But this option will narrow down the root cause analysis.


Contact

In case you have additional questions or need more detailed discussions, please drop me a note @ Saroja_Nayak@infosys.com

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Comments

I would suggest that reconciliation of "0" inventory counts should be of top priority and a best practice. Not addressing this could lead to inflated inventories, or worse missed sales. Would also suggest weekly exception reporting to identify "0" on hands as well as other conditions such as items on hand with with no movement activity in 30 days, 0 OH, with OO no movement in 35 days, as well. These exceptions provide visibility to inventory integrity and out of stock.

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