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The threats are come from two departments; these is receiving and storing department. The main objective of receiving and storing department to overcome these threats is to ensure that the amounts of inventory receive is same as the amount of ordered and for the storing department is to ensure the inventory store in the warehouse are safe and wonâ€™t steal by the theft or company employee. There are 3 types of threats are commonly faced by the company:
1) Receiving unordered goods
2) Error in counting received goods
3) Theft of inventory
If the threats are not solve properly, it will brings effect to the company and seriously it will broke down the company.
THREATS : RECEIVING UNORDERED GOODS
When accept the goods from supplier by the receiving department, the receiving department has to double check the amount and quality of the inventories ordered. These are to avoid unnecessary mistake of receiving unordered goods, errors in counting received goods and theft of inventory. Normally receiving of goods from the supplier was the responsibility of the receiving department while storing for goods was in charge by the inventory store manager. The Charted Accountant has said that the main objective of receive and store function is verity the receipt of ordered inventory and to avoid the inventory of the company being steal or loss and Charted Accountant has say to us a case are happened in CxxxIO SDN. BHD. The company received different amount of raw material ordered from the supplier, and the supplier charge the company for amount the company ordered only. Even though the company did not pay for any extra amount of the raw material but these had results in waste of time to manage the raw material and also overload of raw material in inventory department.
The Charted Accountant had suggested that use the 3 way match: PO (Purchase Order), GRN (Goods Received Notes), INVOICE, before making payment. The primary document of this process known as Goods Received Notes to solve the problem similar as above, this document can record all the item code, description of item, unit of measure, quantity for each item, date goods being received, date of order, and the PO number. When goods receive, the staff at receiving department must compare the PO number on the packing slip with the PO file to verify the goods were ordered, check it whether the quantity receives is correct and the any inferior good are receive before send to the inventory department.
Of course, receiving report not the only one method to solve the problem of receiving unordered goods, our group had found that there are several ways to solve this problem. Such as, EDI to transmit purchase orders for raw material, the manufacture can order for their raw material by using only click of mouse, this system can increase the effectiveness and efficiency of the supplier of raw material. By using the internet, the computer of manufacturing company inventory department can be link together with their supplier computer, the quantity of raw material remain of manufacture can be determine by the supplier immediately accurately. In addition, the system can also accurately deliver the amount of raw material ordered by manufacture without error of unordered goods.
THREATS: ERROR IN COUNTING RECEIVED GOODS
Charted Accountant has said that there are many medium and large factories in Malaysia faced the similar problem of accurately handling their inventory record; the amount recorded by the staff in inventory department is different with the actual amount in the warehouse. Inaccurate inventory records can results in lost in sales, decrease of productivity and late delivery. If more serious, it can affect the factory shut down temporary or permanently. According to the conversation of Charted Accountant, we found that most of the factory faced such problem was emerged from not implant a suitable system to handle the inventory record. The method of old fashioned pen and paper system is already outdated in nowadays, inventory is monitored by a physical count of inventory and the record amount of inventory is update periodically. Charted Accountant said that pen and paper system is still can work well by a small inventory with few items. While, for medium to large inventory with large amount of inventory inside the warehouse, computerized system may be more bin tracking the inventory and maintaining the records.
The Bar code system was introduced by the Charted Accountant to manage the record of the inventory accurately, reduce the inventory tracking errors, and reduced the time associate with cost of inventory. A barcode is an encoding tag or label that is placed on all inventories that allows computers to track and record the inventory faster (it is 10 times faster than a people key in the information by hand) and more accurately (the amount of errors made by the computer system with a barcode is significantly less than made by human error). Other than that, Bar code systems can automatically identify the amount of inventory in warehouse immediately and it also recognizes the detail of the inventory extremely fast by detect on the label or tag.
Bar code system can efficiency handling the record of inventory, nevertheless we had discovery another system can also to manage the record of the inventory as well as Bar code system, it is known as Radio Frequency Identification (RFID). The tag can be applied to the inventory, and it can identify the inventory easily by using radio waves. By using RFID the factory can save warehousing tracking costs and also reduce the time to track inventory indirectly related to save the cost of pay for labor salary. When huge amount of items are shipped in a container, a RFID scanner can show the user exactly amount of inventory inside the container, classify what inventory is in the container and identify all the detail of the inventory (where the inventory should be delivery,when the inventory need to deliver)
THREATS: THEFT OF INVENTORY
There are many case of factory employee thefts from businesses, the employees steal the inventory form the factory without the permission of the factory is said to be illegal. The Charted Account said that this problem increase gradually is effect from the inventory of the factory exposed out and without restriction access to the inventory; the factory should store the inventory in a secure location to restrict the certain people in and out from the storage location. In addition, other reason affect the employee will tend to steal the inventory of the factory is because of sudden financial hardship to gambling, drinking or drug problems. To get the money or to cover the financial problem, the employees steal the inventory in order to exchange for money to achieve their need. This problem can be affect on the accuracy of the inventory records, and indirectly cause the losses of sales, and shortage of inventory delivery to the customer.
The Charted Accountant had suggested that transfers the inventory with proper approval and documentation. Only the approved inventory request document can be access on inventory transfer, for example goods moving from receiving department to warehouse department, and goods moving from warehouse to production floor. These can restrict the unnecessary people go in and out from the inventory department without permission, and reduce the case of theft of inventory from factory. Other than that, the Charted accountant also said that the factory should frequently check and count for the inventory and compare the actual amount of inventory with the amount of inventory recorded.
Other than the suggested by the charted accountant to control the theft for the inventory, we also found that segregation of duties can reduce the case of stealing by the internal employee. Segregation of duties ensures that employees who have the access of inventory and who keeping the record up to date. By assign tasks to each people in different task can prevent employees with access to both inventory and inventory records from covering up their thefts. For example, person who keep the cheque book, issue cheque, approved signature to be different person. We also found that EDI and satellite technology can be used to track the inventory losses, this system can tracks the exactly location of the inventory through satellite. This system is very efficiency and effectively to improve the receiving activity at receiving department but it cannot affordable for every factory because the cost to implement it is very expensive.