Stock with processors and repairers: tracking what is off site

You gave fabric to a sewing workshop, sent a machine part for repair, handed raw material to a partner for processing. None of it is in your warehouse, yet all of it is on the books. On count day you tally the shelves, and the "off-site" balance is either forgotten or each person quotes a different figure. The result is a shortage or a surplus that does not really exist. Here is how to list such balances and confirm them.

What can sit outside the warehouse

There are usually four situations:

• raw material handed over for processing: sewing, woodworking, packing, painting;
• machine parts and spares sent for repair or servicing;
• samples given out for testing, an exhibition or a laboratory;
• goods left for storage in another company's warehouse.

In every case the property remains yours while its physical location is elsewhere. You cannot count it on your shelves, but you cannot skip it either: the balance is on the books, so its existence has to be confirmed.

A register of off-site balances

The first step is to rely on open documents rather than memory. For every transfer that has not yet been returned, make a separate list:

1. Name, unit of measure and the quantity handed over.
2. Who holds it: the organisation and the person in charge.
3. Which document it went out on, and the date.
4. The return date and the processing-loss allowance agreed in the contract.
5. Its present state: being processed, finished, on its way back, under repair.

If the same material went out several times, record each transfer on its own line, not as a total: when part comes back you can see which batch is closed. Prepare the list a few days before the count and refresh it the day before.

How to confirm the balance

A list alone is not enough; you need to know the material really is where it is said to be. There are two ways, and most often both are used.

The first is written confirmation. Ask the contractor for a signed letter stating the balance on the count date, with the name, quantity and condition of the material. Put a concrete question in the request: "how much material do you hold on the count date, in what condition and on which document?" A vague "please confirm the balance" often brings a vague answer. The second is a site visit. For expensive or important lines it is better to go in person and photograph the stock. That may mean travelling to another city or region, so allow time.

A hypothetical example

400 metres of fabric were given to a sewing workshop. The workshop's letter says: 355 metres went into finished goods, 20 metres remain, and 25 metres are cutting waste. The sum 355 + 20 + 25 = 400 adds up. Now you compare the waste with the allowance in the contract. If the allowance is 5 per cent, permitted waste is 20 metres, and the extra 5 metres needs a separate explanation. The figures are for illustration only.

What happens on count day

On count day three things are done for off-site balances. First, the list is checked against open documents one last time, since something may have been sent or returned the day before. Second, each contractor receives a request, with a deadline for the reply. Third, until confirmation arrives the line stays "unconfirmed"; it is not written up as "not found".

Confirmed balances go into the report as a separate section: "stock held by another organisation on the count date". That way warehouse stock is not mixed up with stock held outside, and the committee sees both parts on their own.

Common mistakes

• returned material was never booked into the warehouse, while the contractor has it marked "returned";
• the contractor quotes the balance for a different date;
• a part sent for repair was scrapped at the contractor but is still on the books;
• the list lives in one employee's head rather than in a document;
• nobody stopped dispatch and returns on count day.

Conclusion

An off-site balance may be a small part of the count, yet it often raises questions about the report. How it is carried in the books, how a shortage is formalised or processing waste written off depends on accounting rules, so settle such questions with your accountant or a lawyer. In a stock count, Inventory helps compile a separate list of off-site balances alongside the warehouse count and includes the analysis of discrepancies in its report.