A direct materials inventory is a detailed accounting of materials available for production, but not yet put in use. These include raw materials for manufacturing along with supplies used in the provision of services, such as electrical wiring for contractors. Maintaining accurate inventory records at every stage of production is important to keep costs under control and identify overage, losses, and theft. Computer programs can be helpful, though hard copy records may be preferred or even necessary in some instances.
This includes all items that go into the production of finished products or services. Additionally, firms need to consider indirect materials, miscellaneous items that are more difficult to track. In an example, direct materials for electricians include things like receptacles and wiring. By contrast, solder and electrical tape are indirect materials, because they are much harder to track per project.
Inventories clearly identify all the direct materials available and provide information about their number and location. The direct materials inventory can be used to track the movement of supplies through a business, and may help identify issues like missing components. It can also help personnel locate things when they need them and make sure they will have enough for a project. Line workers at a company preparing to start production, for example, can check the location and numbers of all the necessary components in a direct materials inventory to ensure that production can move forward.
Compiling a direct materials inventory is also necessary for accounting purposes. Companies want to keep track of the value of stock on hand, including stock at various stages of the production process. Raw materials can be expensive and mistakes with financial declarations can lead to accidentally paying more in taxes or experiencing other problems. Detailed inventories may be required by insurance companies as well, because they do not want to pay out claims for items companies didn’t actually have on hand.
Continuously updated computer inventories are a common approach to the direct materials inventory. These provide real-time information about what a company has and where it is for instant reference. Personnel may be responsible for entering updates when they move supplies. It is common to do this after a job, when generating the documentation to bill clients and update company records, as workers can quickly determine how many supplies they used and change the inventory numbers. Companies can also use radiofrequency identification technology to track items that change position in a facility.