Orax SDI Cloud Reference

Physical and GL Inventory management

The Orax SDI system has two modules that can be used separately or together. These are the Inventory and Ledgers modules. They are not linked and so you as the manager will need to ensure that the values in the Physical Inventory module align with the values in the Ledgers GL module.

One of the tools to help you do that is the "Inventory tab" on the Ledgers menu.

Please use the following information to help you find a good starting point to solve and master your inventory challenges.

Physical VS GL inventory
The "Physical stock" (movement, stock takes and stock levels) in the "Inventory" module/menu, is not linked to the "Ledgers GL stock" at all. The reason is that some companies only use the "Inventory module" and others only the "Ledgers module". The result is that you have to ensure that both are aligned if you use both. It can be a challenge, but I'll explain more in the next points. It also serves as a check-and-balance to help you ensure accurate Inventory management. Eg. if your GL and Physical inventory drift apart (do not align), you know something is being forgotten or done incorrectly. I will attempt to explain the tools you have at your disposal to investigate the issues and solve them effectively.

The Ledgers Inventory Tab
The key to understanding the "Inventory" tab on the Ledgers module is to make use of the "Compare" link at the end of each line. This function pops up a side-by-side transaction history of both the GL Inventory (on the left) and Physical Inventory (on the right). To find the issues, you have to reconcile the GL and Physical transactions, starting with opening balances right at the bottom of each list. Remember that physical movement is not necessarily linked to financial transactions, so the system does not know when a transaction is missing or duplicated or incorrectly entered. Consider the following examples.

Example one (new financial year):
If you start a new financial year, you can expect to have a set of stocktakes in the physical inventory on the last day of the financial year (to ensure correct closing and opening levels). You should also have opening balances in the GL for both value and quantity that match the physical levels. To do this, you'll need to import the same stocktakes you used for the previous year end to create opening balances in the GL for the new year. This is done manually (in the Ledgers tab of the Ledgers module), not automatically by the system. The result should be that you will see opening balances in the GL and Physical inventory that match. This is the start of your financial year. If this is not aligned, nothing else will align as transactions will now independently adjust both these inventory levels during the rest of the year.

Example two (sale):
If you sell inventory, you can expect to find a Sales Invoice in the GL and a Goods Dispatch in the physical inventory. If the quantities of both match, the adjustment to the physical inventory and GL inventory will be the same. But if someone forgets to create a Goods Dispatch for the Sale, the quantities will drift apart. You will need to find both these records to ensure that they are aligned. If someone changes one of the documents after the fact, but forgets to change the other, once again the physical and GL inventory levels will misalign.

Example three (stocktake):
If physical inventory levels are adjusted at a location using a stocktake, the GL will only be adjusted if the stocktake was linked to a GL account (see the applicable option in a stocktake). If the stocktake is not linked to the GL, no adjustment will be posted to the GL. Stocktakes that are performed on the first day of a financial year should as a rule not post variances to the GL. It is best practice to perform stocktakes on the last day of the financial year. Every stocktake should be properly analysed by the stock manager and linked (or not) before it is processed.

A note on stocktakes:
A stocktake records an "actual quantity" and compares it with the "system quantity" (that which the system expects at the point-in-time the stocktake was processed). It then creates a "variance". Both physical and GL stock is adjusted using the "variance quantity". So it ignores the "actual quantity" and in fact posts a "transaction" against the stock (eg. add 1 or remove 2). If the stocktake is linked to the GL, it will also use the variance to post a journal against the inventory GL account. What is extremely important to understand about this is that a stocktake does not reset the quantity, but only adjusts it with a variance. So if the opening balance was not correct, this will not solve an issue in the GL.

Debugging Opening Balances
If you drill into the "Compare" link of an item on the "Inventory tab" of the Ledgers screen, and scroll down to view the "opening balances" of the GL account on the left and the Physical inventory on the right, you'll notice that the physical opening balances may be different than the GL opening balances. The GL keeps one level for all internal locations whereas the physical inventory records it per internal location. So the GL should match the sum of the internal locations for physical opening levels. Remember that customer locations are excluded from inventory management. So when you consider your inventory, the system defines it as anything located at an internal location (a location not linked to a customer).

After the GL and Physical opening balances are aligned, it is best to start reading through the transactions on both sides of the "Compare" popup. This will give you a good understanding of how the system posts stock transactions to both data sets.

Building Procedures
It is a good starting point to find a low volume item to debug. This makes it easier as it is a daunting task. Then once you grasp the concept, focus on the big differences. There are usually only a few that are very far out (and they usually relate to opening balances). If you can fix them, the GL and Physical inventory will be closer aligned. Perfection will be hard to reach in a real world inventory management situation, but you want to be close enough to ensure peace of mind, and mostly you want to be able to trust what you see.


Finally, since Inventory Management is one of the most challenging endeavours on the planet, you need to find a way to make success possible. Success is only possible by starting with shorter intervals and smaller data sets. You need to think about weekly stocktakes for the first month or 2 and then monthly for the first year. This will help you find issues quickly and adjust processes to ensure that everybody is doing what they should, how they should. It is also a good idea to start with a small section of inventory that is correctly barcoded and can be scanned quickly and accurately (otherwise it will not be practical). All modern businesses work under tremendous stress and pace and therefore struggle to implement proper routine scanning and labelling of inventory (so that stocktakes and movements can be refined and accurate).