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Inventory Control and Backflushing
Part 1 of 3

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Many companies have the problem of having to issue small quantities of low value parts into kits for manufacturing. This can result in the time spent counting and labeling the issued parts costing more than the parts are worth. Often we need to issue specific quantities of materials which are received and stored in the supplier's packing, such as liquids in drums or wire in rolls. To overcome these types of problems an approach called "bulk issues" was introduce



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Bulk Issues

APICS defines bulk issues as parts issued from stores to Work-In-Process inventory, but not based on a job order. They are issued in quantities estimated to cover require­ments of individual work centers and production lines. The issue may be used to cover a period of time or to fill a fixed--size container.

In practice you requisition from the stores a quantity as a multiple of how they are held in stock, to use as needed. The item is shown on the picking list as a bulk issue item which does not require issuing with the kit of parts. From the shop's point of view, they just draw on a requisition a supply of the item when they need more. From a systems point of view, once the issue transaction is processed, the stock balance is reduced by the full quantity issued, and the work-in-process area account is charged with the total value of the parts issued. Once the shops have finished the job they had the material for, the remainder stay on the work center until needed again. From a material control point of view, once the issue transaction has been pro­cessed, the stock is out of the system, and irrespective of the quantity sitting on the shop floor, it may show as requiring re-order. It can be that the amount on the shops will keep them going for the next three months, but the item can be flagged as being required next week and so a priority order is placed to obtain some for the store. Not a very good situation.

Backflushing

A facility that could simplify the issue transactions when the manufacturing lead time is short and overcome the shortcomings of the bulk issue system is called backflushing.

APICS defines backflushing as the deduction from inven­tory records of the component parts used in an assembly or subassembly by exploding the bills of materials by the production count of assemblies produced.

This means in practice that the issue of the components is only recorded when the assembly or product is complete and booked into stock. It is the receipt transaction which triggers an issue transaction for each component on the parent bill of material identified as a backflush item.

Some of the benefits of backflushing include the reduction of issue transactions to be input, which reduces errors. The quantities will be as per the BOM, and it can handle small production batches without increasing the paperwork. One of the most important practical benefits is that it can handle bulk issue items as discussed above, as with this approach, the correct quantities are charged to the jobs the parts are used on.

The disadvantages must also be understood. Most of the disadvantages are in the way it affects the stores. This concept allows parts to be issued in convenient quantities and the stores balance is only updated with the quantity consumed when the job is finished. This is fine if the manufacturing lead time is short, like half a day, and the issued quantity will be consumed quickly. If the manufac­turing lead time is two weeks, then it creates a problem as the stock balance is never up to date. It makes cycle counting cut-offs difficult, and it can affect the ordering calculations.

Floor Stock

Because of the problems experienced with backflushing, the concept of floor stock can be used in conjunction with it to overcome many of the problems it created.

APICS defines floor stock as stocks of inexpensive produc­tion parts held in the factory from which production work­ers can draw without requisitions.
A second meaning to this term is one used in many software packages and is a second inventory balance located on the shop floor.

With this concept, a convenient quantity of stock, which can be high or low value items, is transferred from the store to the floor stock balance. The items which are to be controlled as floor stock items are identified on the compo­nent record of the BOM, or in some systems it can be entered in the item master record and then it is applied to every BOM the item is used on. When a picking list is created, the floor stock items are identified and the quan­tity to issue is shown as zero.

When the assembly is completed and booked to stock, the floor stock items are backflushed to the floor stock bal­ances, decreasing the balance held on the shop floor.

This overcomes the problem that the store balances are never up to date as now the stores balance is updated when the material is transferred to the floor stock balance. The advantages of backflushing have been retained.

A further advantage is that the remaining quantity of unused material left on the shops is still held in the system and so material will not be ordered incorrectly. The MRP system logic is that the quantity of stock on the shops in the floor stock balance, which is an inventory balance, is added to the store balance before the netting calculation is per­formed. The jobs on the shop that will use the item still show a requirement as the issue transaction has not taken place. This results in the correct balance between supply and demand being maintained.

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