Setting Up an Inventory Item
This article is part of a series entitled
“Evaluating Accounting Software” in which J. Carlton Collins explains
his quick and dirty 20-minute guide to evaluating an accounting software
package. The article series starts here:
The simple process of setting up a single
inventory item is very telling. This process allows the user to explore
the look and feel of the accounting system, gain an understanding of the
depth of features within an advance core module, and in general, take
the system for a ride.
As you begin the task of setting up a new
inventory item, allow yourself to determine how intuitive the system is
laid out. Is the starting menu obvious? Can you easily find the correct
screen on which to begin this process? Upon finding the inventory item
setup screen, try clicking the help button. Does the help screen offer
Some products have organized the inventory
data entry screens very logically – they are easy to understand and use.
Others are not so easy. Some products force the user to visit multiple
screens to set up a single inventory item. In Microsoft Great Plains for
example, there are ten separate screens for entering a single inventory
item. This is very powerful mind you and I applaud Microsoft for their
wide breadth of features; still, the entry is awkward, especially when
you have thousands of items to set up. As you set up the inventory item,
ask yourself the following questions:
Is Matrix pricing supported?
Are Multiple Warehouses supported?
Is Bar code Tracking supported?
Is Consignment Inventory supported?
Are Exploding & Imploding Quantities
How long is the
description field? (256 characters is preferred)
Is there a second
Does the product
support Bill of Materials? If so, how many levels?
Is Price Unit
Are Sales Quantity
Are Margin Pricing
and Markup Pricing supported?
Is a Default Vendor
Are Lead Times
Area Reorder Points
Are Minimum Order
Are Maximum Order
Is Safety Lead Time
items or Substitutes supported?
Is the Item Weight
Is a Default Freight
Purchased Codes supported?
Are Product Comments
Are Drop Shipments
Are Item Pictures
Are Lots supported?
Are Serial Numbers
Are multiple Bins
By the time you have completed the process
of entering a single inventory item, you should have a fairly good feel
for the inventory module in terms of navigation, look and feel,
usability, and breadth of features.
Presented below are the ten screens the user
must visit to set up a single inventory item in Microsoft Great Plains. As
you can see by these screens, the product is very powerful, but visiting
ten screens borders on the ridiculous. If you don’t think so, just try
setting up a few items on your own, then look down at the other 800
items remaining to be entered – you’ll eventually agree with me. In my
opinion, a tabbed dialog box approach would be a little easier and
faster. (To be fair, Great Plains makes it pretty easy to enter your
inventory data into an Excel spreadsheet and then import the results
directly into Great Plains. This is indeed the preferred approach if you
have a great deal of inventory data). In the screen below, we start out
with the main Item Maintenance screen. You can also see the buttons that
give you access to the other nine item maintenance screens – I’ve
numbered them for you.
There are many nice
features to be seen in these screens. Above we see shipping weight,
control over the number of decimal places, standard costing, quantity on
hand and available, class maintenance, type maintenance…
In this screen we see
control of back ordering on an item-by-item basis, ABC codes, 6 blank
user-definable data fields, and substitute items – although Dynamics
limits substitutes to just two – which is probably enough, but most
products support more. For example MAS 90 supports up to 8 alternates
In the screen above we
see that there are up to 15 chart-of-account numbers that must be
associated with each inventory item. To the novice, inputting this much
data may seem like a living nightmare. However I really like this
feature. These default-rich settings helps Dynamics understand which
accounts to debit and credit – as a result, the user does not have to
even think about it. This is important because user error is the number
one cause for improper book keeping. If you remove the debit/credit
account decision from the user, not only do you speed up the data entry
process, but you increase accuracy of the accounting system as well.
Well done Dynamics!
Here we see that
Dynamics supports multiple currencies – perhaps a big yawn to many
people out there. However, don’t overlook this feature too quickly. With
the advent of the Internet, the loosening of border restrictions via
NAFTA, and merger mania that transcends countries, you could find
yourself doing business in a foreign currency very by this time next
year. If this happens to you, you’ll be glad that you selected a product
that supports multiple currencies.
In this screen (above)
we see some of the item pricing options supported by Dynamics. I am
particularly fond of markup and margin pricing options. With these
options, companies can price their inventory as a percentage of costs.
If the cost goes up, it chases up the sales price of the item. If costs
decline, the sales price drops in step to pass along the savings to the
customer. This pricing method allows the company to sell goods at the
lowest possible price which still covers their fixed costs, variable
costs, and desired profit margin. All a company needs to do is determine
it’s desired profit margin and they are “off to the races”
If you are having
trouble understanding what I am talking about, here is an example:
owned and operated a furniture store for the past 17 years. I ask her
two questions as follows: How much profit do you want to make next
year and how much sales do you anticipate next year? Stephanie
responds – “that’s easy, we’ve been growing at 8% a year for the past
five years so we will probably hit $12 million in revenue next year.
Also, I’d like to make a million bucks profit – that’s a reasonable
goal. With just this little bit of data, we can work backwards based
on Stephanie’s prior year financial statements and advise her as
follows: Your fixed costs are $2 million and you want to make another
$1 million in profit. $3 million is 25% of $12 million, therefore you
need to price your furniture with a 25% margin to achieve the desired
results. Stephanie complains that it is difficult to achieve a set
profit margin because her costs fluctuate widely from one month to the
next. Also, further analysis shows that the furniture is currently
priced at just 22% margin, which projects a potential profit of just
$640,000. At this point we tell Stephanie the story about the Georgia
boys who were selling onions. It goes like this:
Florida boys were running up to Georgia and buying Vidalia onions at
4 for $1.00 which they then sold for quarter a piece on the streets
of Jacksonville. After six months, one boy turned to the other and
said – you know, I don’t think we’re making any money – what do you
think we need to do? The other boy thought real hard and then
blurted – I think we need a bigger truck.
OK, it’s an old story.
Also, it’s an exaggerated story as well. But there is a lesson to be
learned here. If you don’t price your products to make a profit, you
will never make a profit. And, if you don’t price your products to make
your desired profit, you will never make your desired profits. In our
example above, Stephanie should consider using Dynamic’s margin pricing
option to target a profit margin of 25%. In this manner, if her costs go
up or down, her price will adjust accordingly to provide the desired
profit margin. The result is that Stephanie will then have the chance to
achieve her goals. There are of course other factors at play that may
prevent success, but without adequate pricing, Stephanie has now chance
at all of hitting her target. Think about it.
In this screen (above)
we see some EOQ modeling options, and other critical item information.
In the screens below we see the ability to control the units of measure
(imploding and exploding quantities), default vendor settings, and other
The following screens
depict item kitting capabilities and historical item data.
Dynamics is not
perfect, no product is. There is no support for alias names, date
sensitive sales, or inventory renumbering just to name a few missing
features. However, you can see that Dynamics offers a great deal of
functionality when it comes to control over an inventory item. This
makes Dynamics an idea product to compare all other products too when
evaluating the inventory setup screens.
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