Inventory Value of a Bin?

Karen Wingard asks, “Has anyone come across the request for ‘Inventory Value of a Bin?’ We have Returns and QA set up as bins, but the CFO wants to know the value of the items in those bins. Any ideas? Any ideas on how to get from the Warehouse Entry Table to the Value Entry table perhaps?”

Responses:
Matt Traxinger: At least in previous versions they are completely unrelated tables. I've done it before, but I always make clear it's a ballpark, not exact.

Greg Kaupp: Here are a few ideas: since NAV always maintains average cost in addition to any other Valuation Method, that might be selected. You could pretty easily create a report that would give the inventory value of a Bin at average cost. If you are using Standard then you could also do the math pretty easily to value a Bin at Standard. Also, if the items in a bin are serialized, then you could give Actual Cost per Bin. I think the only two valuation methods that I would avoid are FIFO and LIFO per Bin. Trying to evaluate FIFO and LIFO cost layers per Bin would be complicated, and I don't think it would be meaningful. Hope that helps.

Karen Wingard responds with, “Thank you Matt Traxinger and Greg Kaupp for your replies.

Greg, of course they are using FIFO :). As they convert to NAV they are also switching to include landed cost. What we have come around to is using a modified physical Inventory Journal that does not do any updating, but does pull the current open/"layer" cost. The biggest risk with this approach is that you can't back date it.
Our next option would be something along the lines of what Matt Traxinger mentioned.
The third option after those would be to make them Locations instead of Bins, but that would involve new processes and training less than two weeks before Go Live, which I am trying to avoid.”

Other responses:
Dave Wiesmann: Here is a thought, with FIFO items, the Unit Cost on the item card represents the average cost of open ILE's (it's updated when Adjust Cost - Item Entries is run). This number times the quantity derived from the bin contents table should represent the value of inventory in a selected bin.

Scott Peetz: Matt is correct; there is no relationship between value entries and warehouse ledger entries. One is needed for accounting, the other for material handling. Totally different concepts. Under FIFO, I could physically pick 1 unit from one bin and 1 unit from another bin received or produced at different times and different costs. However, a FIFO accounting system says take the units and cost from the next FIFO layer in inventory. So the physical world and accounting world cannot always be. If what they are asking is the value of what the cost is in a specific bin it really isn't possible. Greg's suggestion is probably the closest you will get. However, you probably could control this better using Lot or Serial numbers. But obviously this would add a lot of overhead for something that adds no value. 

Scott Peetz: For this specific issue, historically NAV and other systems will handle this poorly. Many bean-counters would not want to show a value in inventory for returns that need to be inspected, repackaged, etc. In past work with clients the only good solution I've found is a separate location or separate items like item 123R where the R is a return item with no cost. In a manufacturing environment it comes in handy to have a separate item because you can create alternate BOMs for returns to consume the R item instead of the normal component items.

Since they are so close to go-live I would suggest they deal with the fact there will be inventory value for the returns on hand. They can make inventory adjustments at month end until you can work with them to come up with a new process. Even the R item idea requires training and testing because the return orders will need to have R items so they can be received.

Karen Wingard: Thank you all for your replies. We have actually come full circle and are going to use the Last Direct Cost times the Quantity in the Bin. This is more accurate than what they were using. It also supports the reporting needs for the banks ABL (Asset Based Lending) review/audit by having the invoice that matches to the item cost. Long road, but hopefully an easier answer that can at least get us a month or so down the road. It may even work long term. Thanks again everyone.

Leadership Learnings

Greg Kaupp shares: Saw a great quote by Peter Drucker, "In knowledge work... the task is not given; it has to be determined. ‘What are the expected results from this work?' is ... the key question.... And it is a question that demands risky decisions. There is usually no right answer; there are choices instead."

I think this captures why I am so excited about the ESOP and Holacracy. I don't believe that any of us can reach our full potential when our work simply consists of being told what to do. Rather, I think we can reach our full potential when we ask the question of ourselves, our clients, and the organization, "What are the expected results of this work?" and once understood, have a stake in the outcome and power to make decisions. It's that belief in each of you and what I believe you and we are capable of that continues to fuel my passion for the ESOP and Holacracy, even though change is difficult and we've just started our ESOP and Holacracy journey.

For more on our ESOP journey, please read this recent interview I did with one of our tribe members. And, for more on Holacracy please read our books reviews. 

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