This article serves to explain how TMMS handles the financial elements of Inventory Costing along with the proprietary method used by TMMS to value and record Inventory cost.
In Summary
The process is as follows: An item of inventory, is in general created from a requirement in the field.
- The requisition on which the item is listed goes through a number of approvals before being sent for quotation by the allocated Buyer.
- Once the buyer has received three or more quotes, and registered them line by line on the system, a recommendation is made to purchase from xyz vendor. The approved Purchase Order (PO) is then sent for approval, issued and despatched to the vendor.
- On receipt in Antananarivo, the individual line items are added to a Freight Consignment Note (FCN) and despatched to the field.
- In the field the warehouse operation "Receipt" the individual Items against the PO's from which they were ordered and allocates them to a location within the warehouse.
- The individual items can then be "Issued" to parties in the field, at which point the cost is allocated to an AFE.
The introduction of "Unit Price" occurs at the point a quotation is entered by the Buyer into the system as a Vendor quote within a "Request for Quotation" (RFQ), as TMMS is multi currency, it is at this point that the Currency (CCY) of the quotation is captured. The system requires that the Buyer attaches a copy of the Quotation.
The Quotation is then reviewed by the SCM, and subsequently approved by the Business Unit Manager.
On approval, the Buyer is then able to create the purchase order, using only the information which has been approved for a specific vendor against a specific RFQ. There is no alteration to the information which is used to create the PO line items.
The currency is passed from the RFQ, through to the purchase order without any change. Once the line items have been added to the PO, along with other information pertaining to the PO. The PO is created in the currency of the quotation without change.
On submission for approval, the Delegation of Authority (DOA) is selected from a drop down list based on the USD (Equiv) calculated on that month's USD Conversion rate, set at the commencement of the month by finance department. The Approval can not be submitted without the selection of DOA.
The PO is then lead through the system for approval by each position registered in the DOA.
Once approved, the Buyer is then required to "Issue" the PO, at this point, the Order Date and the appropriate ROE is selected, and locked into the Purchase order. The ROE is then carried through the rest of the system and used for all calculations back to USD Equiv.
As part of the process an IPR and FCN, are created, but they play no part in the Inventory pricing. However each line item is a reflection of the PO Item, the only variation being the Qty.
From an FCN, the warehouse staff, can click on the "Add Receipt" button which takes them to the relevant PO Line item, from where they click "ADD RECEIPT".
This action creates a new receipt linked to the PO Item. Included in the relationship between PO Item and Receipt, is the Snapshot of the Currency and ROE and the Unit Price for the item. As part of the process of creating the Receipt, a link is created to the catalogue item, this allows for the Inventory value from the Receipts to summed up to the catalogue Item. On the Receipt a numberof fields are populated and calculations carried out. These include the following:
- A1 - USD EXCHANGE SNAP - Non Changeable CCY to USD Exchange Rate from PO
- PO Item Unit Price (from Qte) - The Item unit price as stated in the PO in the PO Currency
- Receipt Unit Price (USD Equiv.) - Calculated {Round(PO Item Unit Price (from Qte)*A1 - USD EXCHANGE SNAP*100)/100}
- Receipt - Qty Received - Entered by User
- Receipt Extended Value (USD Equiv.) - Calculated - {Receipt - Qty Received*Receipt Unit Price (USD Equiv.)}
There are other values created, however further explanation is required first.
Issues, Returns, Transfers and Adjustments, ie items which impact on total inventory are tracked via Movements and every movement is related to a Receipt. So you can see that there are a number of hierarchies involved as follows: Catalogue Item can have 1 or many ReceiptsReceipt can have 1 or many Movements
When a Movement is created, linked to a Receipt, the following fields are passed to it:
- Receipt Unit Price (USD Equiv.)
- Movement Qty - Entered by the User.
So now through the relationship to Receipts, the following four fields can be created in the Receipt by summarising the Qty in each movement Type
- Total Issued Qty
- Total Returned Qty
- Total Stock Adjustments
- Total Transfer Qty
andthese are used to calculate Receipt Avail Stock which is calculated as follows:- =Receipt - Qty Received-Total Issued Qty-Total Transfer Qty+Total Stock Adjustments+Total Returned Qty
Therefore for each Receipt, we are now able to calculate Inventory Extended Value (USD Equiv.) by using the following formula:
= Round(Receipt Avail Stock*Receipt Unit Price (USD Equiv.)*100)/100.
And hence by the relationship with the Catalogue Item, we are able to sum / aggregate the two fields to give us a summary at the Catalogue Item. In addition the Receipts become our detailed Inventory records allowing for the creation of various Reports.