Chapter 7
Inventory: Merchandising Transactions
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at checkout. If this procedure is not followed, then a backup measure could be implemented, with
alarms going off upon exit.
All these plans, policies and procedures must adhere to relevant laws and regulations, as illustrated
in Figure 7.28. For example, customers cannot be strip-searched because the alarm goes off as they
are leaving the store because this would be a violation of their rights.
PLAN
Train inventory
personnel
properly
POLICY
Implement
detection
controls
PROCEDURE
Scan tagged
items at
checkout
REGULATION
Apprehend
suspects at
sound of alarm
LAW
Conduct
constitutional
search
FIGURE 7.28
All employees should be trained in the inventory procedures in place. For example, the receiver
should count all goods that enter the premises and match the count with the one initially written on
the purchase order.The supervisor should ensure that this procedure is followed. Internal auditors
can conduct field visits to ensure that both the supervisor and the receiver are implementing
procedures according to plans and policies in place.
Safeguarding Inventory
All company assets must be physically protected. Cash is generally deposited in a bank; securities
can be kept with the brokerage house. Inventory, on the other hand, is often located on company
premises in a warehouse or onsite storage facility. The location needs to be easily accessible for
receiving or shipping, but it also needs to be protected from the possibility of theft. That is why
inventory facilities are usually locked up after closing. The more valuable the inventory, the more
elaborate the security measures needed to protect it. These measures can include anything from
fences and guard dogs to alarm systems, security guards or even hiring an inventory custodian who
is charged specifically with protecting the inventory.
The Economical and Efficient Use of Resources
The concept that resources should be used economically and efficiently is especially applicable to
inventory. First, financial ratios—which will be examined later in this textbook—can be used to
determine if there is too much or too little inventory on hand. If there is too much inventory, then
money is tied up that could be used more efficiently elsewhere. If there is too little inventory, then
customer demand will not be met.
Second, the physical condition of the inventory should be checked regularly. This can be done
visually or through inventory reports. Any inventory items that are old or in disrepair, and therefore
difficult to sell at market value, can be sold at reduced prices or disposed of so that valuable storage
space can be maximized.
