Available VS On Hand Quantity

Introduction to "Available Quantity" in ERP Systems

In an ERP (Enterprise Resource Planning) system, "Available Quantity" refers to the amount of a particular product or item that is available for immediate use, sale, or production. It takes into account the stock on hand, reserved quantities for orders, and any pending replenishment. The other day, at Think Tank Solusindo regular meeting, our team brainstorm about it. This topic is very crucial to know for the inventory management. Our team take a deep dive on each of our ERP solutions on this topics. The discussion quite interesting that why we decide to write about this article. Essentially, available quantity shows how much stock is realistically available for fulfilling new orders or internal use at any given time.

Importance of Understanding "Available Quantity"

For businesses operating within manufacturing, distribution, or retail, understanding the concept of "Available Quantity" is crucial. Here’s why:

1. Accurate Order Fulfillment: Knowing how much stock is available prevents businesses from overcommitting or underselling. If a sales team promises a delivery without checking available inventory, it could lead to customer dissatisfaction due to delayed or incomplete orders.
2. Optimal Inventory Management: Managing stock levels effectively ensures that companies don’t face overstocking or understocking issues. Overstocking ties up capital, while understocking could result in missed sales opportunities.
3. Efficient Production Planning: In manufacturing, knowing available raw materials or components is essential for planning production runs. Without accurate data, production could be halted or delayed, leading to inefficiency and potential revenue loss.
4. Enhanced Customer Satisfaction: Real-time information about available quantities ensures that customer inquiries and orders are handled with confidence and accuracy. This can improve customer relationships and lead to higher retention.
5. Improved Forecasting and Planning: By understanding current available quantities, ERP users can make better predictions regarding future demand, lead times, and replenishment needs.

Benefits of Knowing Available Quantity in Operations

1. Prevent Stockouts and Delays: By keeping an eye on available quantities, users can quickly respond to inventory shortages and avoid potential production delays or missed delivery deadlines.
2. Streamlined Procurement Process: Knowing available quantities helps procurement teams to plan replenishment orders at the right time, optimizing stock levels and minimizing unnecessary storage costs.
3. Cost Efficiency: When a company knows exactly how much stock it has available, it can avoid rush orders, emergency shipments, or excessive warehouse space costs. This translates into more cost-efficient operations.
4. Better Collaboration Between Departments: Sales, production, procurement, and warehouse teams can all make better decisions when they have real-time data on available quantities. This ensures that everyone is aligned on current inventory levels and prevents operational disruptions.

Overall why you need to know this

In an ERP system, understanding the concept of "Available Quantity" is critical for efficient inventory management, production planning, and customer satisfaction. It allows users to optimize their operations, prevent costly errors, and make data-driven decisions, ultimately contributing to the overall success of the business.

Why Can the Available Quantity Be a Negative (Minus) Quantity?

In an ERP system, it is possible to encounter situations where the "Available Quantity" appears as a negative value. This happens when the demand (e.g., sales orders, production orders) exceeds the stock on hand or when there are data discrepancies, system issues, or process-related errors.

How Does Negative Available Quantity Happen?

Almost many people "Available Quantity" should be impossible to have minus quantity, right? In the perfect world, yes it is impossible but on reality it is very possible. Here are some scenario case on our operation that could cause minus "Available Quantity":

1. Unrecorded Stock Movements: If stock movements (such as goods receipts, stock transfers, or returns) are not recorded in real-time or correctly, the system will assume that the available stock is less than it actually is, leading to a negative balance.
2. Sales Orders Exceeding Inventory: If a sales order is processed before checking the actual inventory, the system may overcommit by processing orders even though the physical stock isn’t available, resulting in a negative quantity.
3. Backdated Transactions: If a transaction, such as a goods issue or delivery, is backdated to a time when the stock was insufficient, it can retroactively push the available quantity into negative territory.
4. Timing Mismatch Between Warehouse and System: If there is a delay in updating inventory after physical goods are received or shipped, the ERP system may reflect a negative quantity, even though the stock is physically available.
5. Data Entry Errors: Manual errors, such as entering incorrect quantities during stock adjustments or processing inventory transactions, can lead to negative inventory figures.
6. Incomplete Cycle Counts or Stock Audits: If periodic stock counts or inventory reconciliations are not done properly, the available quantity in the system might be inaccurate and result in negative values.

Problems Caused by Negative Available Quantity

In almost every implementation we do, we hope this can be avoidable because we believe it present more disadvantage over advantage. If you could review above causes, that should be avoid by having more solid inventory management practice. Here are some impact from negative Available Quantity could cause:

1. Order Fulfillment Issues: If the system shows negative stock, the company may face difficulties fulfilling customer orders, leading to delayed deliveries, customer dissatisfaction, and lost sales.
2. Production Delays: In manufacturing, negative inventory could indicate that essential raw materials or components are missing, which may halt production lines, causing delays and inefficiency.
3. Misleading Reporting and Analytics: Negative available quantities can distort inventory-related reports, making it difficult to make informed decisions regarding stock replenishment, demand planning, and procurement.
4. Overordering or Overstocking: A negative available quantity could lead to unnecessary or excessive procurement orders to compensate for the perceived stock deficit. This could result in overstocking and increased carrying costs.
5. Financial Discrepancies: Since inventory is often linked to accounting systems, negative inventory could cause discrepancies in financial reporting, potentially affecting profit calculations and tax reporting.

How to Prevent Negative Available Quantities

That why at Think Tank Solusindo , we have some best business practice rules on this matter that whenever possible to avoid this. Here are some ways that we can do to preventing this happening to your operation, such as:

1. Implement Real-Time Inventory Updates: Ensure that all stock movements, such as goods receipts, shipments, returns, and stock adjustments, are updated in real-time in the ERP system to reflect accurate available quantities.
2. Regular Cycle Counting and Stock Audits: Perform regular cycle counts or stock audits to reconcile physical inventory with the system records. This can help identify and correct discrepancies before they cause significant issues.
3. Set Safety Stock Levels: Configure safety stock levels within the ERP system. When stock falls below this threshold, the system can alert procurement or warehouse teams to take action, preventing stockouts or negative balances.
4. Restrict Overcommitting: Configure the ERP system to prevent processing sales or production orders that exceed the available stock. This can be done by setting up an inventory check before orders are confirmed or allowing backorders only under specific conditions.
5. Train Staff on Proper Procedures: Ensure that warehouse staff, sales teams, and inventory managers are trained to follow proper procedures for recording stock movements, processing orders, and handling inventory transactions.
6. Backdate Restrictions: Restrict or minimize the use of backdated transactions, as these can cause inventory inconsistencies. Encourage timely recording of transactions to maintain inventory accuracy.
7. Automate Replenishment: Use automated replenishment features in the ERP system to create purchase or production orders when stock levels fall below predefined reorder points, ensuring that stock is always available. This area is very possible to do but sometime this task a bit challenging then a lot of companies abandoning this where it is very possible to do this. Please consult with our team Think Tank Solusindo on how we can help you setting up your inventory replenishment model.

Conclusion

A negative "Available Quantity" in an ERP system is often the result of process inefficiencies, system mismanagement, or human error. It can cause various operational issues, such as delayed orders, production stoppages, and inaccurate reporting. By implementing real-time inventory tracking, regular audits, safety stock settings, and proper training, businesses can prevent negative available quantities, ensuring smooth and efficient operations. When you have smooth inventory management, then your operation is much easier to maintain and monitor and then you can scale you business operation in much more manageable tasks.

If this is somewhat still sound "unfamiliar" with you, please visit our website www.8thinktank.com or review and contact our team about it at Think Tank Solusindo or whatsapp us at +62-857-1434-518. We would love to hear from you.