Inventory Setup in NAV
The information below includes features on Inventory Setup in NAV that I most commonly field questions about. Our recollection of the inventory setup decisions that were made during the initial NAV implementation can become cloudy as the years pass. A periodic review of the inventory configurations within your database can help you gain a tighter grasp on inventory processing, reporting, and reconciliation.
In a later post, I’ll cover some inventory processing “best practices”. This initial article will identify and describe a few of the more significant inventory configuration settings within NAV. The listings below are my most frequently discussed features in Inventory Setup in NAV. In parenthesis, I’ve included the page on which the setup field is located.
Automatic Cost Posting (Inventory Setup) – A checkmark in the “Automatic Cost Posting” field indicates that an inventory-related posting should hit the general ledger at the same time as the inventory sub-ledger. Most of the time, it makes sense to have this setting turned on as the general ledger is kept up-to-date with the inventory ledger. On rare occasions, this setting is left disabled for performance reasons. In such cases, a periodic batch posting routine must be run monthly (at least) to keep the inventory and general ledgers in sync.
Expected Cost Posting (Inventory Setup) –At the most basic level, enabling the “Expected Cost Posting” setting indicates that you’d like the value of inventory that is not yet invoiced to be included in your balance sheet. NAV’s posting group setup includes an “Inventory Interim Account” which, when used, temporarily holds inventory “expected” value until the point at which the item’s actual cost is known. As an example, when an item is received on a purchase order, the “Inventory Interim Account” is debited. Later, when the vendor’s invoice arrives and is posted, NAV will reverse the posting to the interim account and debit the main inventory account with the “actual” inventory value. This allows you to break “expected” and “actual” inventory values into different G/L accounts for reporting purposes.
Automatic Cost Adjustment (Inventory Setup) –Enabling this feature allows NAV to keep inventory costing as accurate as possible in real-time. In older versions of NAV, this setup field did not exist. Back then, the “Adjust Cost – Item Entries” routine needed to be manually run (at least monthly) so that NAV could make any necessary inventory costing adjustments. With the “Automatic Cost Adjustment” feature enabled, NAV will kick off a mini-run of the “Adjust Cost – Item Entries” routine for a specific inventory item when a user makes a posting against that item. For performance reasons, the “Automatic Cost Adjustment” setting allows you to define how far back in time NAV will consider making an adjustment. That said, I normally advise our end-users to think of this setting as either being turned on (by setting the field’s value to “always”) or turned off (by setting the field’s value to “never”). Enabling this feature can slow inventory posting performance slightly, but in my experience, it’s worth the added benefit of achieving more real-time inventory costing.
Prevent Negative Inventory (Inventory Setup/Item Card) –As we all know, having an inventory item with a negative on-hand quantity is not possible in reality. That said, some of our customers do allow inventory to go negative on occasion. This situation typically occurs when the shipping department gets ahead of the receiving department with their postings. For other customers, negative inventory is strictly forbidden. The “Prevent Negative Inventory” feature in NAV allows the flexibility (at the item level) of dis-allowing postings that would drive an inventory item’s quantity on-hand into negative territory. In past versions of NAV, this feature was commonly added as customization. Now, in NAV the functionality exists out of the box. Enabling this feature can prevent inventory valuation issues and help keep a more accurate record of inventory quantity on hand.
Costing Method (Item Card) –Quite often I work with customers that have set an item’s “costing method” field to the wrong value by mistake. If the mistake is identified prior to any posting being made with that item, then the costing method can simply be changed. However, once postings have occurred, correcting the item, its transactional costs, etc. becomes a more complicated endeavor. For our customers who utilize only a single costing method across all items, I typically suggest configuring NAV to set the costing method field’s initial value to the company’s default costing method. Regardless, paying close attention to the item card’s costing method is a critical piece in maintaining accurate inventory costing/valuation.
Exact Cost Reversing Mandatory (Sales & Receivables Setup/Purchases & Payables Setup) –As noted above, this feature can be enabled in both the AP and AR setup pages. Enabling this feature results in NAV enforcing an exact cost reversing policy when purchase or sales returns of inventory are posted. (I’ve noticed a common misconception among our end-users that if the “copy document” feature is used to create a credit memo/return order, then NAV will automatically apply an exact cost reversing policy. This is not the case.) For companies that have items with significant cost fluctuation, this feature can be a life-saver as it ensures that the inbound and outbound costs on returns will stay in sync.
Hopefully the summary explanations above can help shed some light as to how your inventory system is configured. I’d recommend speaking with a NAV specialist prior to making any inventory configuration setting changes as some of the features described above require a bit more effort to implement once your inventory system is already up and running.
Under the terms of this license, you are authorized to share and redistribute the content across various mediums, subject to adherence to the specified conditions: you must provide proper attribution to Stoneridge as the original creator in a manner that does not imply their endorsement of your use, the material is to be utilized solely for non-commercial purposes, and alterations, modifications, or derivative works based on the original material are strictly prohibited.
Responsibility rests with the licensee to ensure that their use of the material does not violate any other rights.