Advanced Inventory Tracking inventory Using QuickBooks Online

For years the outcry from the accounting community has been “QBO doesn’t track inventory” and when QBO was first unveiled (circa 2000), that was 100% accurate. It was originally launched to cater to service based industries, not product based industries. But time, technology, the evolution of the internet, have changed that and it’s worth looking into again.

Perpetual Inventory

This is where each item’s quantity, and its cost, is tracked daily. The ordering, purchasing, and receiving of inventory from vendors will be tracked, as well as the ordering and sales to customers on a per item basis. This is is the most labor intensive workflows, but will ultimately give the most robust reporting to be able to look back and make business decisions

Perpetual Inventory Workflows (down the Perpetual Inventory Rabbit Hole)

Perpetual Inventory is just the beginning. There are countless (see what I did there) options when it comes to business practices in terms of inventory tracking. I like to group these into 3 main categories

I Buy Stuff, I Sell the Stuff

This is the easiest perpetual inventory situation to track. The basic idea is that of a reseller of goods. Think of a retail establishment. They will buy goods, receive them, and put those exact goods on the shelf for their customers to buy. This type of situation is worthwhile to know how much they’ve purchased and how long it sits on the shelf before it’s sold to their customer. This type of tracking reveals a lot more options and opportunities to the business owner such as gross profit margins, inventory turnover, reorder points

Optional workflows

Available QTY to sell 

This is the quantity that is not promised for someone else. Special order items or Sales orders (where the customer orders an item, but hasn’t completely paid for it yet) can be part of the challenge because if your inventory system says you have 10 on hand, but you have promised 6 to someone else, you wouldn’t want to say to another customer that you can buy 5 of them. Someone is going to be short on their order. Which then causes back orders, or at leat a customer service issue to work with the customer. Knowing the Available quantity would enable the sales staff to know that before making the promise to the customer to avoid that situation.

E-Commerce

 This is one of those workflows that could tie into everything. It’s a Pandora’s box that deserves a blog of its own, but needs to be mentioned. If your client has or has interest in selling their resale goods online, there are a multitude of questions that need to be addressed. At schoolofbookkeeping, we have held a series of workshops focusing on these E-Commerce Fundamentals that discusses many of these questions. Sales Tax considerations, where online are these items going to be sold, order fulfillment, as well as managing the inventory levels are just a few of the topics that really need to be unpacked before determining what is the proper way to handle that. The biggest question, is “where is my inventory source of truth?” This will guide you on finding a solution that will keep that in alignment.

I Buy Stuff, I do something to that stuff, and sell different stuff

The next grouping of inventory workflows centers around selling something different then you purchased. The key outcome of tracking this process is the costs and quantities from the raw materials will move through the balance sheet throughout the building process. Kitting, grouping of items, and creating a Bill of Materials is commonly the terminology that is use to identify the tracking of these processes, but the way that it is handled could vary. The essential part of all of this is that the business owner would know how much they can build based on what’s on hand, and when they build it the associated cost is moved to the finished goods, and when they sell it, that cost will be moved into COGS.

Optional Workflows

Multiple Units of Measure

This is the Costco feature - I buy bulk (One qty) and sell individually (related qty). The easiest example is a Case/Each situation. I buy from my supplier a cse of goods, which I will open up and stock to either sell individually, or use in the building of a finished goods. A bike shop, a pool company, or small manufacturer that also has a store front would fit into this picture. The key is setting up the Unit of Measure set so the system will know the math behind the scenes to be able to buy in  case and show you how many “eaches” you have without performing an inventory adjustment or tracking as separate SKUs

Bundling vs Building

To contrast the building tasks and workflows, there is a bundling option. This is essentially grouping the items together at the time of purchase or sale so the actual inventory movement. The key difference is “when” the increase or decrease of inventory takes place. With bundling, the quantities and cost occur on the sales or receiving transaction, not before, so that is something to take into consideration.

I Buy Stuff, I need to know everything about that stuff before I build or sell different stuff.

This is where the $*!% gets real. This is when everything else rears its head. Often times when looking at a technology solution to handle these workflows, you will be faced with overkill or not enough, and some tough decisions will have to be made. Using the 80/20 rule to determine the workflows addressed automatically vs. the manual process that will remain is the ideal mindset to have when evaluating technology solutions

• Multiple Inventory Locations  - The need to have inventory in various physical (or virtual) locations to know where inventory is physically located
• Bin Location - Within each site, there will places to put things. Shelves, aisles, rows, and Bin can make picking and receiving streamlined
• Barcoding - Printing and assigning barcodes to make transactions with these items much faster and less prone to errors
• Warehouse Picking and Receiving - fulfillment of customer and vendor orders communication process with workers
• Serial Number Tracking - When specific items within the inventory need to be identified for warranty purposes.
• Lot # - group number assign to an item typically for food and drug to be aware of recalls
• Landed Cost - The spreading of fees for receiving fulfillment across the individual item cost.
• Manufacturing Runs/Plans - Making and forecasting the assembly of finished goods based on the availability of raw materials.
• Dropshipping - Arrangement with manufacture for the order fulfillment is completed by another entity. Ownership of Inventory is not held by the 
• Third Party Logistics (3PL) - The arrangement of inventory storage and order fulfillment with another entity.
• Shipping - Arrangement of shipping costs and tracking to provide insight to the customer.
• Outsourced Manufacturing - The assembly or build process of raw materials into finished goods by a third party entity.
• Cycle Counts - Ability to physically count inventory and enter adjustment to account for loss of inventory through waste, breakage, or theft.
• FIFO/LIFO - Accounting for the costs of Inventory items on a first in/first out (FIF)) or Last in/First Out (LIFO) basis
• B2B/B2C - Many businesses will have other businesses as their customers, not only direct to consumer. This adds additional concerns like customer specific pricing and online ordering portals as an option.

What Can Be Handled in QuickBooks Online

Now that we have a general idea of the definitions and client workflows, let’s see where QuickBooks Online can fit into this equation. The “I Buy Stuff, I Sell Stuff’ type of business or “Reseller” model is the best fit for tracking in QuickBooks Online. QuickBooks Online has basic ordering and purchasing workflows (Purchase Order to Bill - Estimate to Invoice) to be able to receive and sell individual quantities. Reorder points and assigning SKU# assist in tracking and planning to ensure stock levels. Cost is accounted for on First In/First Out )FIFO) basis.

“Yeah….But” 

Before you go leaping for joy that QuickBooks Online is the tool, there are some key inventory tracking features that you should know aren’t currently in the QuickBooks Online product. 

• Sales Orders - The ability to special order, receive customer deposits, and reduce available quantities is not a function of QuickBooks Online. There are rumors it’s coming, but when??
• Item Receipts - Receiving transaction to record the receipt of inventory, where the bill for the inventory is a separate event. If you want these two events as separate transactions, it’s not an option.
• Inventory Assemblies - Combining raw materials into a finished good is not possible in QuickBooks Online
• E-commerce is another facet that could add additional complexities to all areas of inventory management. And,.....oh yeah…..Additional sales tax complexities……WOOHOO!!!

Which Version of QuickBooks Online to choose for Inventory

QuickBooks Plus and Advanced offer the same level of inventory management functionality, but Advanced will offer additional supporting features that may help streamline your workflows. We have additional resources and tutorials that take a closer look at these features

• Mass editing and adding of items with spreadsheet sync
• Approval workflows for Purchase orders and Bills
• Enhanced User Roles and permissions

Third Party Recommendations

Not all Third Party Applications are created equal. Some will focus on specialized needs

• Warehouse Management Solution (WHS)- SOS Inventory offers a comprehensive way to manage inventory within and across multiple locations. The QuickBooks Integration is mostly bi-driectional so your QuickBooks specific workflows are not impacted negatively. For example, you can create an invoice using SOS, then you can send that same invoice for payment through QuickBooks Online with the same item detail. This way the remaining transactions (Payment, deposit, and reconciliation of the deposit) can occur automatically. They have been nice enough to extend a lifetime discount of 10% for their top two levels when you sign up for a free trial with DANDELONG as the promo code.
• Manufacturing - Katana is a streamline robust inventory system for Manufacturers. Their easy to use planning tools allow you to adjust in realtime to fulfill and build the right orders for the most return. They have created a fantastic resource guide for manufacture accounting best practices, and are the highest rated inventory application on the Intuit App Marketplace.
• All in One - CIN7 Core is a robust all in one system to streamline Inventory management for Retailers, wholesalers, and online sellers as their platform combines portals for E-commerce, B2B, and Retail POS in a native platform that integrates with QuickBooks

Summary

One person’s tracking inventory is not another’s warehouse management. QuickBooks Online offers the ability to track on hand quantities as a way to calculate gross profit of inventory but it’s best suited for an after the fact system, rather than anything forward facing. For those types of tools and features, you can best augment your business with a specific tool for that while still feeding the financial impact into your accounting system in a way which ideally wouldn’t impact the core functionality and workflows you still handle in your QuickBooks.