Internal controls apply to more than your business’ accounting and financial reporting. As a manufacturer, internal controls are essential to safeguard your most valuable asset – inventory.
Consider these 10 tips to help manage and protect your inventory.
1. Lock and monitor inventory
This seems obvious, but it’s one of the most low-cost and effective methods to protect inventory.
2. Organize and label inventory
If you can’t find your inventory, you have less chance of controlling it. Consider implementing a barcode system which allows you to track items with a single scan, save time looking for stock, and eliminate manual errors.
Radio Frequency Identification (RFID) is another technology you can use for continuous inventory tracking.
RFID uses radio waves to send information between a tag and a reader, which is then collected and processed by a special software. The tags are versatile. They can be fixed to products, packaging, containers or vehicles, and contain data on a specific item.
For higher-end stock items, you can equip RFID tags with security alarms.
3. Leave a paper trail
A good control system tracks and documents inventory movement through the production system, from raw material to finished product.
Proper and exact documentation of who moved what and when can make all the difference when trying to reconcile variances or track down any missing stock.
4. Conduct cycle counts on a regular basis
A full inventory can seem like a daunting task, so incorporate smaller cycle counts into your employees’ routines.
These counts will indicate if your inventory tracking is functioning correctly. They may also circumvent any discrepancies that crop up throughout the year.
5. Spot check the inventory list
Ask your production manager or someone familiar with your stock to look over the inventory records periodically. If they see inaccuracies, count the items.
Sometimes, you can spot errors with a high-level review.
6. Review your bill of materials
Have any inputs to production changed over time? Perhaps an employee has found a way to make production more efficient. Or maybe the quantity of a raw material used in the production process has changed.
7. Look for obsolete inventory
Is there anything collecting dust in your production area? Does it hold value to the company?
Materials may be carried at cost on the books – when in reality – they’re no longer useful. Sell, scrap, or recycle what’s obsolete and write it off accordingly.
8. Minimize movement at year-end
Make sure your employees know when movement should stop at year-end and abide by the guidelines you’ve laid out.
9. Consider an inventory observation
Do this when you take a full physical inventory. Any adjustment made to the books for inventory at year-end are likely based on the physical counts performed.
An inventory observation can help verify that physical counts are being conducted correctly before entry is made.
10. Set the tone
When employees see that accuracy and process are important to leadership and can impact how they can add value, chances are it’ll have a positive impact on their work performance.
Have questions about protecting inventory? Let’s talk!