Inventory management is a more encompassing science that involves many facets such as ordering, receiving, tracking inventory transfers warehouse management, distribution, etc. Inventory management supports menu planning, procurement, bid analysis and production management, and provides a comprehensive big-picture view of all food-related operations.
Over the next several weeks, we will take a look at inventory management processes and the best practices to use in a school nutrition operation. To set a baseline for this blog series, we’ve laid out some common inventory management terms.
The collection of ingredients, foods, or supplies a school or district warehouse stores for use in food production and subsequent sale to students.
- Inventory management
The processes of procuring, tracking, and managing inventory stock with the purpose of getting the right quantity of the needed items to the right place at the right time.
- Physical Inventory
The process of counting the entire inventory in a school or central warehouse in a single event.
- Perpetual Inventory
The process of counting inventory where the current Quantity on Hand (QoH) is calculated based on a beginning QoH and subsequent inflows and outflows.(or the process of matching paper records of expected QoH inventory counts with actual physical counts of tangible inventory – again, an example would be good, say, Jane the Warehouse Manager generates the Perpetual inventory calculated from Orders, Receipts, Transfers, etc.
- Quantity on Hand (QoH)
Quantity of the stock item in your warehouse or school
- Quantity Committed
Quantity of the stock item that is currently committed for production or distribution; does not have to be physically in inventory
- Quantity on Order
Quantity of the stock item that has been ordered but not yet received and has not been added to stock
- Quantity Available
Quantity of the stock item that is uncommitted and available for production or distribution.
Quantity Available = Quantity on Hand (QoH) + Quantity on Order – Quantity Committed
- Cycle Counting
The process of counting portions of the inventory on a periodic basis without counting the entire warehouse’s inventory at once. For example, you might choose to count inventory the first week of the month where all frozen goods are counted on Monday, all dry goods on Tuesday, etc. That same process would be repeated monthly.
- Negative Inventory
A condition whereby the quantity on hand is less than zero. This is a valid condition in a software system and can happen due to the timing of activities in receiving and withdrawing stock, or other inventory processes.
Current QoH = Beginning QoH + Receipts through purchases – Usage
- Whole Unit (or Case)
Describes the way multiple physical units of the same item are packaged. Typically a sealed carton containing a certain quantity of a specific item. Orders are typically placed in whole units.
- Broken Unit
Smaller units of the stock item within the whole unit. Items typically used in production are broken units. For example, a case of tomato paste (the whole unit) may contain 6 #10 cans (the broken unit). The #10 cans are withdrawn from inventory for use in production.
- Lead Time
The amount of time required for an item to be available for use from the time it is ordered. Lead time should include order approval and submission, vendor order processing time, vendor delivery schedules, receiving, inspection, etc.
- Item (aka. SKU or Stock Keeping Unit)
Refers to a specific item in a specific unit of measure.
- Purchase Order (PO)
A purchase order is a document used to authorize, approve, track, and process purchases. Since most food items are purchased by school districts on annual bids, one Purchase Order is typically issued to each vendor listing out all items, prices, and maximum quantities.
An order communicates the purchase to the vendor. It lists the items, quantities, prices, delivery location and delivery date to the vendor. The order is also used to process and track receipts and vendor invoices/payments associated with the purchase.
The process of receiving the ordered items. In an inventory management system, this step adds the received goods to inventory thereby incrementing the Quantity on Hand.
The process of removing items from inventory for the purpose of production. This step reduces the Quantity on Hand in the inventory management system. In other industries, this process may be called “Issuing” as a warehouse operator issues items to the production staff. Withdrawal is a more appropriate term in school nutrition inventory management.
The process of moving inventory from one school to another.
Inventory Valuation Methods
- FIFO (First-In-First-Out)
Inventory valuation method where stock items that come in first are used first. Very applicable in a food service environment as items are perishable or have a shorter shelf life and there is a clear need for older items to be used first.
- LIFO (Last-In-First-Out)
Inventory valuation method where stock items that come in last go out first. Should not be used in a food service environment where most items are perishable. An example where this makes sense is a pile of sand, where more stock is dumped on the top of the pile and stock is taken out also from the top. Sand that is at the bottom of pile does not get used until all other sand is used up even though it was the first to come in.
- Moving Average Cost
Inventory valuation method that recalculates an item’s cost at each receipt by averaging the actual cost of the receipt with the cost of the current inventory
This list of terms is by no means a comprehensive glossary. We will encounter more terms as we discuss inventory concepts in future blog articles, especially as it relates to warehouse management and production management.
Let me know what you think! Did I miss any commonly used terms? Do you use different words in your inventory management communications?