Open ERP Book (Stock and Manufacturing)

Stock and Manufacturing

This part of the book concentrates on physical materials - the handling of stock and the transformation of materials by assembly and manufacture.

Stocks are the physical embodiment of their product specification, things rather than datasheets. So they need to be stored and moved between locations, and tracked in sets and individually. They have a size, a weight, and a cost. Open ERP manages all of this in some rather useful and unique ways.

Manufacture is the transformation of materials and components, perhaps using measurable resources, into other products and services, adding value to your company on the way.

Logistics and Stock Management

Open ERP’s stock management is at once very simple, flexible and complete. It’s based on the concept of double entry that revolutionized accounting. The system can be described by Lavoisier’s maxim “nothing lost, everything changed” or, better, “everything moved”. In Open ERP you don’t talk of disappearance, consumption or loss of products: instead you speak only of stock moves from one place to another.

Just as in accounting, the Open ERP system manages counterparts to each of its main operations such as receipts from suppliers, deliveries to customers, profits and losses from inventory, and consumption of raw materials. Stock movements are always made from one location to another. To satisfy the need for a counterpart to each stock movement, the software supports different types of stock location:

Physical stock locations,

Partner locations,

Virtual counterparts such as production and inventory.

Physical locations represent warehouses and their hierarchical structure. These are generally the locations that are managed by traditional stock management systems.

Partner locations represent your customers’ and suppliers’ stocks. To reconcile them with your accounts, these stores play the role of third-party accounts. Reception from a supplier can be shown by the movement of goods from a partner location to a physical location in your own company. As you see, supplier locations usually show negative stocks and customer locations usually show positive stocks.

Virtual counterparts for production are used in manufacturing operations. Manufacturing is characterized by the consumption of raw materials and the production of finished products. Virtual locations are used for the counterparts of these two operations.

Inventory locations are counterparts of the stock operations that represent your company’s profits and losses in terms of your stocks.

The figure Stores location structure when Open ERP has just been installed shows the initial configuration of the stores locations when the software is installed.

(Pic) Stores location structure when Open ERP has just been installed

Note: Hierarchical stock locations

In Open ERP locations are structured hierarchically. You can structure your locations as a tree, dependent on a parent-child relationship. This gives you more detailed levels of analysis of your stock operations and the organization of your warehouses.

Tip: Locations and Warehouses

In Open ERP warehouses represent your places of physical stock. A warehouse can be structured into several locations at multiple levels. Locations are used to manage all types of storage place, such as at the customer and production counterparts.

For this chapter you should start with a fresh database that includes demo data, with stock and its dependencies installed and no particular chart of accounts configured.

Understanding double-entry stock management

To illustrate this concept of stock management, see how stock moves are generated by the following operations:

Receiving products from a supplier,

Delivery to a customer,

Inventory operation for lost materials,

Manufacturing.

The structure of stock locations is shown by the figure Stores location structure when Open ERP has just been installed. Stocks are assumed to be totally empty and no operation is in progress nor planned.

If you order ‘30 bicycles’ from a supplier, Open ERP will then do the following operations after the receipt of the products:

Stock Move operation from Suppliers to Stock

Location Products

Partner Locations > Suppliers > Suppliers -30 bicycles

Physical Locations > Tiny SPRL > Stock +30 bicycles

If you deliver 2 bicycles to a European customer you will get the following transactions for the delivery:

Stock Move operation from Stock to European Customers

Location Products

Physical Locations > Tiny SPRL > Stock -2 bicycles

Partner Locations > Customers > European Customers +2 bicycles

When the two operations are complete you’ll then get the following stock in each location:

Resulting stock situation

Location Products

Partner Locations > Suppliers > Suppliers -30 bicycles

Physical Locations > Tiny SPRL > Stock +28 bicycles

Partner Locations > Customers > European Customers +2 bicycles

So you can see that the sum of the stocks of a product in all the locations in Open ERP is always zero. In accounting you’d say that the sum of the debits is equal to the sum of the credits.

Partner locations (customers and suppliers) aren’t located under your company in the hierarchical structure, so their contents are not considered as part of your own stock. So if you look just at the physical locations inside your own company those two bicycles are no longer in your company. They’re not in your own physical stock but it’s still very useful to see them in your customer’s stock because that helps when you carry out detailed stock management analysis.

Note: Accounts

In managing stock, a gap between the data in the software and real quantities in stock is difficult to avoid. Double-entry stock management gives twice as many opportunities to find an error. If you forget two items of stock this error will automatically be reflected in the counterpart’s location.

You can make a comparison with accounting, where you’ll easily find an error because you can look for an anomaly in an account or in the counterparts: if there’s not enough in a bank account then that’s probably because someone’s forgotten to enter a customer’s invoice payment. You always know that the sum of debits must equal the sum of the credits in both accounting and Open ERP’s stock management.

In accounting, all documents lead to accounting entries that form the basis of management accounting. If you create invoices or code in statements of account, for example, the results of the operations are accounting entries on accounts. And it’s the same for stock management in Open ERP. All stock operations are carried out as simple stock moves. Whether you pack items, or manufacture them, or carry out a stock inventory operation, stock moves are carried out every time.

You’ve seen a fairly simple example of goods receipt and product delivery, but some operations are less obvious – a stock inventory operation, for example. An inventory operation is carried out when you compare the stock shown in software with real stock numbers counted in the stores.

In Open ERP, with its double-entry stock management, you’d use stock moves for this inventory operation. That helps you manage your stock traceability. If there are 26 Bicycles in real stock but Open ERP shows 28 in the system. You then have to reduce the number in Open ERP to 26. This reduction of 2 units is considered as a loss or destruction of products and the correction is carried out as in the following operation:

Inventory operation to adjust stock

Location Products

Physical Locations > Tiny SPRL > Stock -2 bicycles

Virtual Locations > Inventory Loss +2 bicycles

The product stock under consideration then becomes:

Real and counterpart stocks when operations are completed

Location Products

Partner Locations > Suppliers > Suppliers -30 bicycles

Physical Locations > Tiny SPRL > Stock +26 bicycles

Partner Locations > Customers > European Customers +2 bicycles

Virtual Locations > Inventory Loss +2 bicycles

This example shows one of the great advantages of this approach in terms of performance analysis. After a few months, you can just make a stock valuation of the location Virtual Locations > Inventory Loss to give you the value of the company’s stock losses in the given period.

Now see how the following manufacturing operation is structured in Open ERP. To make a bicycle you need two wheels and a frame. This means that there should be a reduction of two wheels and a frame from real stock and the addition of a bicycle there. The consumption / production is formalized by moving products out of and into physical stock. The stock operations for this are as follows:

Stock situation resulting from manufacture

Location Products Step

Virtual Locations > Default Production +2 Wheels Consumption of raw materials

Physical Locations > Tiny SPRL > Stock -2 Wheels Consumption of raw materials

Virtual Locations > Default Production +1 Frame Consumption of raw materials

Physical Locations > Tiny SPRL > Stock -1 Frame Consumption of raw materials

Virtual Locations > Default Production -1 Bicycle Manufacture of finished products

Physical Locations > Tiny SPRL > Stock +1 Bicycle Manufacture of finished products

So you’ve now got the outcome you need from the consumption of raw materials and the manufacture of finished products.

Note: Assessing created value

You might already have noticed a useful effect of this approach: if you do a stock valuation in the Default Production location you get a statement of value created by your company (as a negative amount). Stock valuation in any given location is calculated by multiplying quantities of products in stock by their cost. In this case the raw material value is deducted from the finished product value.

Complete workflow from supplier to customer

Now you’ll follow a practical example by adapting stock management operations. In order you’ll see:

defining a new product,

initial setting of inventory,

receiving products from a supplier,

delivering to a customer,

analysis of the state of stock.

Defining a new product

To start, define the following product:

Product Definition

Field Value

Name Central Heating Type 1

Code CCT1

Product Type Stockable Product

Supply Method Buy

Use the menu Products ‣ Products, then click New to define a new product.

(Pic) Definition of a new product

Three fields are important for stock management when you’re configuring a new product:

Product Type,

Procure Method,

Supply Method.

Product Types

The product type indicates if the product is handled in stock management and if Open ERP manages its procurement. The three distinct product types are:

Stockable Product : this product is used in stock management and its replenishment is more or less automated as defined by the rules established in the system. Examples, a bicycle, a computer or a central heating system.