Basics of Inventory Management
This article focuses on the principles of Inventory management in Katana. It explains the stock movements related to sales, making, and purchasing. It is part of the Basics of Katana series of articles that are recommended if you are just starting with Katana.
Tip: Please refer to the following article to find out more about costing principles in Katana.
You can manage the stock for both finished products and raw materials in Katana.
Stock movements in Katana are completely automatic in real time based on your purchasing, making and selling activities. You do not need to update any stock levels manually and can always stay on top of your inventory.
Katana will show you the difference from optimal inventory levels for all your products and materials. Based on this, you can make accurate manufacturing and purchasing decisions to avoid out-of-stock situations or excess inventory.
The optimal stock balance calculation in Katana does not only take into account the stock you have on hand and any safety stock levels, but it also considers all your open Sales, Purchasing, and Manufacturing Orders, which are booking the items or are expected to add items to the stock in the future. This means that your current sales and manufacturing plan are taken into account.
The Inventory list
You can access the "Inventory" in the "Stock" screen in Katana. The list shows stock levels for all your products and materials at a variant level. You can conveniently see the total "Value of Stock" in hand and the Average Cost per unit.
In this article, we are focusing on the quantities. Here's how it works:
"In stock" - the amount of stock you currently have on hand. Products are added to stock when Manufacturing Orders are completed and deducted when Sales Orders are delivered. Materials are added when Purchase Orders are received and deducted for materials included in Product Recipes when Manufacturing Orders for products are completed. You can also change "In stock" levels using Stock Adjustments.
"Committed" - the amount of stock that is committed to open Sales or Manufacturing Orders. Products are committed to open Sales Orders and materials to both open Sales and Manufacturing Orders.
"Expected" - the amount of stock that is expected to arrive in the warehouse. Products are expected from open Manufacturing Orders (not yet completed) and materials from open Purchase Orders (not yet received).
Reorder Point - the level of inventory for a product or a material that indicates a need to replenish the stock. Edit it directly on the Stock screen. Read more about Reorder Point, How to set a Reorder Point, and Determining the appropriate level of Reorder Point.
Missing / Excess - your product manufacturing and material purchasing decisions should be based on this column. It shows the stock difference from the optimal level. It is a calculated field in Katana and equals "In stock - Committed + Expected - Reorder Point". If you see any negative values, you should create a new Manufacturing Order for a product or a Purchase Order for a material.
Keeping an eye on the "Missing/Excess" helps to ensure you always have enough products in your warehouse to satisfy the demand from customers and materials to meet the manufacturing needs. You can sort the "Missing/Excess" column to quickly see the items with the lowest stock levels (compared to the optimum).
However, also keep in mind that too much excess inventory is also not preferable as it comes at a cost (cash is tied up, you need to rent additional warehouse space and pay salary to people handling the stock etc.).
You can manually set Reorder Points for products and materials in Katana. Reorder Point is the level of inventory for a product or a material that indicates a need to replenish the stock. You can read a more detailed definition of Reorder Points here.
If you are aiming to keep some products in stock for faster delivery to customers, meaning that you are using a Make to Stock approach (read more here), we suggest setting Reorder Points for products. Those have to be set and edited manually in Katana for each product and variant. There is no sales forecasting functionality in Katana that would set the Reorder Points automatically. Here's more information on determining the appropriate level of Reorder Points.
If you are only Making to Order (read more here), then the Reorder Points for products should be set to zero as you are not aiming to keep any products in stock.
In either case, we suggest using Reorder Points for materials to satisfy manufacturing needs. Most businesses keep some safety stock levels for materials even if they are making products solely to order.
Reorder Points for materials also need to be set manually in Katana. They are not calculated automatically based on Reorder Points for products or supply lead times.
As described above, your product manufacturing and material purchasing decisions should be based on the "Missing/Excess" quantity in the "Inventory" list, not only based on comparing the "In stock" and Reorder Point quantities. The "Missing/Excess" is a more accurate figure as it takes your open Sales, Manufacturing, and Purchase Orders into account. This means that it takes your current sales and manufacturing plan into account.
Detailed Inventory Intel
You can click on the "In Stock", "Committed" and "Expected" quantities to see more detailed Inventory Intel, which shows stock movements for the last 365 days, all orders related to the mentioned quantities and other relevant info.
Clicking on the "In stock" quantity for the item opens up a historical stock movement report with quantities and costs related to each change over the last 365 days. It makes it easy to track the reasons for changes to the Average Cost or the quantity for each item.