when i calculated annual summary of certain inventories i get one figure. but when i calculated it on monthly basis for the same and then add those 12 results independently i get different answer?
is there a theory to explain this?
ISSUE: Why annual inventory not equal to monthly sum of inventory in same period?
RE-STOCKING: In general, textbook illustrate how inventory is restocked by drawing the inventory to re-start replenishing when Q = 0. However, this is not how things are down in real world. No manager would allow the inventory to reach zero and start re-ordering. Effective inventory management dictates that the manager should maintain a base security (safety inventory) to allow for re-stocking. Thus, we use inventory turn over per month to estimate re-ordering. For that reason, inventory does not reach zero before ordering.
Now, when we add the inventory at the end of the year, this is an accounting summation, it includes all inventory we have in stock (both displayed on the shelves and in the warehouse). This number should be large. Compare to the monthly inventory, we will see the among of re-ordering each month; add all 12 months inventory, we would still have less than the annual inventory because we do not include the safety inventory.
ILLUSTRATION: A figure illustrating this point is attached. The annual inventory amount include region below the red line. Monthly inventory is the summation above the red line. Therefore, you will find that the summation of the annual and monthly are not equal. See attached figure. I hope this is helpful. Cheers.
REFERENCES: See attached article.
Thanks Paul, much appreciated.but......
My question is not that.lets see the below example(what happens in reality)
2013 annual summary of containers by shipping lines a,b,c,d,e
a- excess 20
b-shortage 05
c-excess 20
d--excess 60
e-excess 55
when you analyse as at december 2013
total shortage 05
total excess 155
setting off shortage against excess total remaining l by December 2013= 150 excess
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the monthly analysis of same shipping lines (a+b+c+d+e)
jan- excess 50
feb- shortage 30
march excess 20
april excess 10
may -shortage 10
june excess 40
july excess 20
august excess 10
september shortage 10
october excess 60
november shortage 20
december excess 10
when you add monthly shortages (jan-dec) 2013
total shortage 70
total excess 220
setting off shortage against excess total remaining as at december 2013 =150
==================================
the ultimate out come is same but the the movements during the 12 months are hidden
i need to explain the shortage 70 and excess 220 in relation to final outcome of 100 excess
hope you got my point.....
@LALITH, please attached excel. The 5 short and extra +5 excess may have been adjustment number because the last item is made 55 instead of 50. Thus +5 and -5.
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