Anyone who has taken an accounting course understands the importance the bean counters assign to inventory. Even the term bean counter suggests someone seeing how many beans there are, and that’s inventory. It’s important because products and raw materials on the shelf are arguably the most important assets a company has since they can be turned into cash, and the sooner the better!
For process manufacturers, liquid or solid raw materials are frequently handled in very large amounts, tons rather than ounces. Asael Sharabi looks at how manufacturers handle these products, particularly the solids, in his Automation.com Feb 2019 article Better Inventory Management Strategies to Improve Financial Reporting. He puts the topic into the larger financial context for manufacturers and discusses how accountants must approach it.
Inventory is one of the most important assets of an organization, and its effective management is increasingly recognized as a key component of financial health and profitability. This is recognition that suboptimal management in this area has a negative impact on an organization’s financial strength, customer satisfaction and competitive advantage—as well as on their ability to provide accurate financial reporting, forecasting, resource allocation and effective strategies. At its most basic level, an incorrect inventory balance causes errors in the calculation of the cost of goods sold and, therefore, errors in calculating gross profit and net income.
So, errors in measuring inventory lead to errors in determining income and profits, hence the concern from accountants. Getting an accurate inventory measurement is particularly difficult with solids in the bulk quantities necessary for so many industries.
Take, for example, industries such as food and beverage, chemicals, mining or cement where raw materials including grain, sugar, salt and limestone are stored in large bins, silos or warehouses. Unlike liquids with a relatively easy-to-measure level surface, the surface of solid materials is rarely flat, with peaks and troughs that change as the vessel is filled and emptied.
The persistent problem when trying to measure solids is getting something accurate despite those undulating peaks and troughs. Most level measuring approaches, whether tape measure or other technologies borrowed from liquids applications, deliver a point reading—the level at this spot, wherever it is—which makes no allowance for peaks and troughs. The only real solution is a technology able to see and measure all those contours. Fortunately, such a technology exists.
New technologies can now replace traditional single point level measurements with continuous online volume measurement, and in addition offer visualization of peaks and valleys within vessels. These 3D solids scanners provide accurate and reliable results, even when measuring uneven or sloping surfaces in dusty conditions. Using acoustic measurement and 3D mapping technologies, these scanners measure level by transmitting a low-frequency pulse, and then recording and mapping echoes from the surface.
Asael is talking about the Rosemount 5708 3D Solids Scanner using Acoustic Phased-Array technology to provide a three-dimensional measurement for accurate volume readings, even when the surface is rough and uneven. It provides continuous readings automatically, eliminating the need to send operators into potentially hazardous situations to take readings manually. Combined with supporting software, it can solve this particular problem and provide the information accountants really need to deliver accurate financial data.
You can find more information like this and meet with other people looking at the same kinds of situations in the Emerson Exchange365 community. It’s a place where you can communicate and exchange information with experts and peers in all sorts of industries around the world. Look for the Level Group and other specialty areas for suggestions and answers.