Identification and Coding of Materials

setting of levels, but however carefully these are controlled, some deterioration is often inevitable. Inventory appreciation. Where value has increased with the passage of time, it may be necessary to add provision to the main inventory account figure, although this must be done with extreme care. Uninvoiced goods. Where goods have been received and entered on the inventory accounts, but no invoices have been received, those items must be shown in detail in the final accounts. If these goods are not shown as a separate item, the main inventory account figure will show an asset that has not yet been debited to the purchase ledger. The following is the value of inventory for balance sheet purposes, put in a simple form:

• Main inventory account balance • Plus or minus price adjustment provision • Minus obsolescence provision • Minus deterioration provision

You may well find that the last two are grouped together as one provision for obsolescence and deterioration, known by another name as wastage. This provision is often used to cover another aspect of loss that occurs, namely pilfering. This is a point to consider with great care, particularly when any discussion takes place, because it has personal implications. It is, however, a significant factor in some organisations, particularly large retail stores that have to make fairly large provision for it. Remember, pilfering is a very sensitive subject, and you should choose your words carefully when it arises.

The Importance of Identification

The wide variety of materials and components moving in and around an enterprise is constantly being referred to, for one purpose or another, by one of the following departments:

• Design and development • Process planning • Production control • Material control • Production • Stores and inventory control • Invoice section • Cost accounting

In some cases, other departments may be involved, but it should be fairly clear that if every department uses a different language in describing or identifying and item considerable confusion will occur. This kind of confusion can lead to a number of inefficiencies in a company and result in financial losses and unnecessarily high costs. It is vital, therefore, that a common means of identifying material supplies is devised and implemented firmly throughout the company. The factors that need to be taken into consideration are shown in Figure 38.

Figure 38. Stores coding considerations

Accuracy of identification, selection, picking of stock

Simplicity of common language

Assists standardisation and variety reduction

Stores Coding System

Generic alpha-numeric systems: Military systems, NATO Medical systems, NSV Bar code systems, EAN systems

Links with IT systems, bar codes, EPOS and EDI processes

Better recording, analysis and reporting Stores / stock location basis

Publication of a classified stock list

Assists buyers and suppliers in using a common code

Methods of Identification

We normally refer to or identify most things by a name or description, and in some cases this method is quite satisfactory. Provided that all interested parties use the same name or description, and provided that it is clearly understood how records should be maintained for the items in question, no confusion need arise.

Example: 3" x ½" Bolts and Nuts may also be called 3" x ½" Nuts and Bolts, or ½" x 3" Bolts and Nuts, or ½" x 3" Nuts and Bolts, or 3" x ½" Hex, Rd, Hex. Bolts & Nuts, etc. or 3" x ½" Pins and Nuts, etc. or 3" x ½" Screws and Nuts, etc.

This is a relatively simple example of differences in terminology, which can result in the same item being referred to by a score of different names, so that several stock Cards are in being filed under the different descriptions. This in turn may result in several batches of the same items being ordered or manufactured, so duplicating requirements many times. Multiply this simple problem by the thousands of items in the inventory, and you can see the difficulties that may result from “identification by Description.” Furthermore, the administrative operations of classification, filing or analysis, are complicated by the many items that, though different in themselves, have very similar descriptions. Another problem is that clerical activities become unnecessarily prolonged where there is a continual need to reproduce long, descriptive titles. Only where there are relatively few items involved, where the descriptions are short and cannot be misused or confused, where the point of reference for filing purposes is quite clear, is identification by description likely to be satisfactory. In other cases, an alternative method must be devised, and the usual approach is to use alphabetical numerical or alpha-numerical coding. It is clear that some form of coding will be essential in firms where a wide variety of materials is in use. This need would be even greater where sophisticated forms of classification, analysis, or data processing were to be used. Coding could simply involve allocating a number to each item as it arises, but this method make the identification of items from their codes more and more difficult as the number of items involved increases. This difficulty is reduced by grouping

like items together and devising coding systems to indicate the groups into which items are classified as well as identifying the individual items within each group. The first stage, therefore, in any coding exercise is “classification.” This involves grouping items into types or classes. It will be necessary to identify and specify each item and then categorise them within the group or subgroup to which they belong. Having classified all the items into groups, we can devise a coding system that will be much more helpful in readily identifying items from their codes and that will provide a better basis for analysis of information.

The complete sequence of operations therefore would be:

• identify — what the items is, what it does; • specify — its description, dimensions, tolerances, and so on ; • classify — to its correct group and subgroup; and • code — by allocating group, subgroup, and item designations.

Benefits of a Coding System of Identification

Having decided that, in the majority of cases, coding is likely to provide the most effective method of identification, we can study this technique in more detail. In the first place, we should consider the major benefits that may accrue from the use of the technique, so that our subsequent planning of the system will achieve the most advantageous results. The application of a coding system may achieve the following benefits:

• It will identify each item accurately. • It will become a common means of reference by all functions throughout the organisation. • It will obviate the need for the repeated use of descriptive titles. • It will assist in the simplification or rationalisation and subsequent standardisation of materials. • It provides a better means of recording and analysis. • It provides a better means of physically controlling stocks. • It will help to prevent unnecessary duplication of stocks.

• It will provide a better basis for instruction and training or personnel throughout the company. • It may be used as a stock location reference.

It therefore eliminates many of the problems that may occur when “identification by description is in use.

Methods of Coding

Before deciding which method of coding is to be used, it is important that we consider the many purposes being served and the principal functions that are going to be affected. Frequently, there will be a conflict of interests between the management functions that will use or be affected by the coding system; it is essential that the method we ultimately decide upon gives the greatest overall benefit to the company. The main purposes and the principal functions interested may be:

• better identification of the physical materials in the factory — this will be of the greatest interest to the stores, inspection and production functions; • easier reference for recording and analysi s purpo ses — this will obviously be of concern to the administrative and clerical functions; • better means of identifying and classifying for charging the value to jobs — this will be an objective of the accounting functions; • an aid t o all activities of materials management and control — this will be of significant importance to top management; and • an aid to applying mechani cal or electroni c methods of recording and control — this will be the aim of data processing personnel.

Some systems of coding will be more suitable than others in achieving one or other of the above purposes. We must decide which of the objectives is the most important, in the particular company with which we are concerned. The method of coding must be “tailor made” for that company. When we have decided the main objectives of our coding system and have obtained agreement from all the functions affected, we must then determine the basis on which materials shall classified and coded.

Methods available include the following:

• Identifi cation by the nature of the material — this is the method most commonly used because of its flexibility. Materials are classified into groups and subgroups by virtue of what they are; for example:

Main Group

Steel Steel Fixings & Fastenings Fixings & Fastenings Oils & Greases Oils & Greases Sub Group Item

Bar Strip Bolts & Nuts Rivets Lubricant Coolant ½" Rd Mild 4" x ¼" 18/23 Carbon 3" x ½" Hex Rd Hex 1" x ¼" Pop rivet 20/50 Engine oil Transformer oil

From the examples above it can be seen that, however wide the variety of materials in use, classification by the nature of the item is flexible enough to cope. This factor is extremely important if we wish ultimately to use a digital significance coding, such as the Brisch system.

• Identification by end use of the mat erial — this is the method of classification that works back from a finished product and all materials are ultimately coded according to the finished product, of which they form a part; for example:

Model Main assembly Item Escort Escort Escort Escort Escort Escort Engine Engine Steering Steering Transmission Transmission Cylinder block Cylinder head Steering arm Column Universal joint Drive shaft

It can be seen from the above examples that this system of classification is less flexible because materials are used on more than one finished product. Provision must also be made for items common to the range of products (e.g., oil seals, bearings, etc.), and a coding system will be required for such common items. Consumable items and spares will also require separate coding systems.

There are other bases for the classification of materials that may be used in rather special circumstances, such as:

• identification by sources of supply, • identification by customer, • identification by the location of the item, and • identification by the handling characteristics of the item.

These methods are very limited in their application and are usually inflexible once they have been implemented. The next consideration in devising our coding system is to determine the whole range of information that the system must be designed to cover, so that every item is individually recognisable from its code number. We may want the code to indicate the following items of information:

• Main-group classification • Subgroup classification • Item within subgroup • Sizes or shape of item • Colour of item • Chemical composition of item • Differences in use of item • Unit of quantity (e.g., pairs, sets, dozens, rolls, gallons) • Variations from standard • Accounting significance

Many systems go no further than coding by group and subgroup and then merely allocating a number to each item within each subgroup; but where there are many items within subgroups, quick identification becomes virtually impossible. Finally, we must decide whether we are going to use alphabetical, numerical or alpha-numerical coding. Many companies use letters of the alphabet as initial letters for main groups of items but this practice usually results in confusion, as the number of groups increases and initial letters are duplicated for several groups. Furthermore, if it ultimately becomes necessary to mechanise the