Direct material inventory tracks materials available for production, including raw materials and supplies, to control costs and identify issues. Indirect materials are harder to track. Accurate records are necessary for accounting and insurance purposes, and computer programs can help with real-time updates.
A direct material inventory is a detailed accounting of materials available for production but not yet put into use. This includes raw materials for manufacturing as well as supplies used in providing services such as electrical wiring for contractors. Keeping accurate records of inventory at all stages of production is important for keeping costs under control and identifying overruns, losses and theft. Computer programs can be helpful, although printed records may be preferred or even necessary in some cases.
This includes all items that go into the production of finished goods or services. Additionally, companies need to consider indirect materials, miscellaneous items that are more difficult to track. In one example, direct materials for electricians include things like outlets and wiring. Solder and electrical tape, on the other hand, are indirect materials because they are much harder to track by design.
Inventories clearly identify all available direct materials and provide information about their number and location. Direct material inventory can be used to track the movement of supplies through a company and can help identify problems such as missing components. It can also help staff locate items when they need them and ensure they have enough for a project. Employees in a company preparing to start production, for example, can check the location and number of all required components against a direct material inventory to ensure that production can move forward.
Compiling a direct inventory of materials is also necessary for accounting purposes. Companies want to track the value of on-hand inventory, including inventory at various stages of the production process. Raw materials can be expensive and mistakes in financial statements can lead to accidentally paying more taxes or facing other problems. Detailed inventories may also be required by insurance companies because they don’t want to pay claims for items the companies didn’t actually have on hand.
Continuously updated computer inventories are a common approach to direct material inventory. They provide real-time information about what the company owns and where it is for instant reference. Personnel may be responsible for entering updates when moving supplies. It is common to do this after a job, when generating documentation for billing customers and updating company records, as employees can quickly determine how many supplies they have used and change inventory numbers. Companies can also use radio frequency identification technology to track items that change position in a facility.
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