Configure inventory policies
The Negative inventory field group determines whether physical or financial negative inventory will be permitted. It contains the following two parameters:
Physical negative inventory - Select this check box to enable the system to issue an item from inventory, even though stock levels are insufficient. This parameter is sensitive for inventory value calculation. The decision whether to select or clear this parameter must be taken with the utmost care to prevent incorrect use of the functionality.
Example: There is usually a time lag between arrival of items in the warehouse and when the purchasing department updates the received item's product receipts. When you visit the warehouse, you notice that the items have arrived for your purchase order, even though it is not a part of your warehouse in the system.
If the item's item model group has Physical negative inventory selected, you can deliver the item, even if it has not yet been registered as being physically present in the inventory.
Financial negative inventory - When this check box is cleared, you are prohibited from issuing quantities from stock, although physically available, if there are insufficient quantities that are financially updated, on-hand inventory for the item.
When this field is selected, negative financial inventory is enabled, and the user can issue quantities from stock and inventory without knowing the real cost price. The invoice of these items might be posted after the items are sold, and then an inventory closing must adjust the cost to actual cost.
If the check box is selected and you are using an actual costing approach, you should also enter a cost on the item, to temporarily value the issue, until adjustment to actual cost can be made. Enter the cost price in the Cost price field on the Manage cost FastTab on the Released products page.
Quarantine management
Select the Quarantine management check box to indicate that products linked to this group are under quarantine management rules and requirements. This option is used for items that are set aside and awaiting approval for reception into the physical inventory and distribution.
If the check box is clear, items will not be under quarantine management unless a quarantine order is created manually. When the item is physically updated, a quarantine order is generated with the status of Started.
Physical update field group
Fields in the Physical update field group determine the workflow that is used when you send or receive items and you use them to set rules around how an order is handled for receiving and shipping. The Physical update field group contains the following parameters:
Registration requirements - By selecting this check box, the user must register the receipt before inventory is updated through the product receipt on a purchase order. Register a product to record the item's physical presence at the company. These products are a part of the physical warehouse on-hand. However, the cost will not be updated until they are physically updated with a product receipt update. Generally, this option is used with the Warehouse management functionality.
- Example: Select the Registration requirements parameter to monitor the vendor performance or the reception of goods into the company. In this case, you must monitor the goods when they arrive at the company.
Receiving requirements – When this check box is selected, item receipts must be physically updated before they can be financially updated. A product receipt must be entered and posted before the corresponding vendor invoice can be posted. If there is a difference between the received quantity on the product receipt and the invoiced quantity on the invoice, an icon is shown in the Product receipt quantity match field on the Vendor invoice page.
Picking requirements - When you select this check box, item issues must have the status of Picked before inventory is physically updated. Select the Picking requirements parameter with the warehouse management functionality when you use location management on the item and when shipments are collected by using picking routes.
Deduction requirements - When you select this check box, item deductions must be physically updated before they can be financially updated for both inbound and outbound.
- Inbound - A product receipt must be entered and posted before the corresponding vendor invoice can be posted. If there is a difference between the deducted quantity on the product receipt and the negative invoiced quantity on the invoice, an icon is shown in the Product receipt quantity match field on the Vendor invoice page.
- Outbound - A packing slip must be entered and posted before the corresponding customer invoice can be posted. If there is a difference between the deducted quantity on the packing slip and the negative invoiced quantity on the invoice, an icon is shown in the Product receipt quantity match field on the Customer invoice page.
Reservation field group
The Reservation field group contains the following parameters:
- FIFO date-controlled - If you select the FIFO date-controlled option, the inventory reservation is controlled by a sorting date according to the FIFO principle. Batches are reserved based on the earliest date of receipt of items, according to the principle of first in, first out (FIFO).
- Backward from ship date - This option becomes available if you have selected the FIFO date-controlled option. If you select Backward from ship date, the inventory is reserved backward from the desired ship date according to the principle of last in, first out (LIFO). If no receipts are available before the ship date, a FIFO reservation is used.
- Item sales reservation - Determines whether item reservation is manual or automatic. If a reservation is automatic, inventory is reserved when order lines are created. It’s possible to make reservations at the item number level for BOMs (Automatic option), or for the individual elements of a BOM (Explosion option). The default value for Item sales reservation can be inherited from the Accounts receivable parameters page. On that page, the value is set in the Reservation field in the Sales default values section on the General tab.
- Same batch selection - Same batch selection lets you reserve inventory for a sales order line against a single batch of inventory. If you want to use this option, you must also set the Consolidate requirement option to Yes. Additional settings are required for the tracking dimension group and storage dimension group.
- Consolidate requirement - This option is like the Same batch selection option, and it consolidates inventory that’s reserved for sales order lines into a single requirement.
- FEFO date-controlled: Known as first-expired-first-out, this option allows you to reserve batches that are close to their expiration date or best before date. You also need to set the Pick criteria field to select either Expiration date or Best before date.
- Pick criteria: Select the option that determines the date for master planning calculations and reservation logic. This date is an internal setting that decides whether an inventory batch can be used.
When you select these parameters for the item model group, you determine how Supply Chain Management makes reservations of the type Automatic, where no on-hand inventory or receipts with the Received or Invoiced status exist for the item, however, there are receipts with the Ordered status for the item.
Additionally, for these parameters to come into effect, the Reserve ordered items check box must be selected in Inventory and warehouse management > Setup > Parameters > General tab.
Inventory model
The inventory model determines both the cost measurement method (standard costing or actual costing) and the cost flow assumption under actual costing for valuing inventory. When you are using actual costing, the inventory closing function will adjust estimated cost according to the rules of the selected inventory model. The choices are as follows:
- FIFO
- LIFO
- LIFO date
- Weighted avg.
- Weighted avg. date
- Standard cost
- Moving average