Inventory Valuation Method. Move to LIFO

Hi,

What is driving the desire to move to LIFO?  What problems do you face now?  What costing method do you use now?   STD, WAC, then what cost level?  Cost per part, cost per lot, cost per serial?   

LIFO and FIFO are less commonly used.  I know both have some limitations. Often, the limitations may not apply, but sometimes they do.  

Given you describe project-based manufacturing, it’s important to know the issues you see today. 

Best regards, 

Thomas

Thomas,

Thanks for quick response.

Head Office has mandated a change to LIFO across the organization. I can't say more than that.

We are 15 months into the project. Productive next year.

Inventory part's settings for past 14 months.

Finished products: (Inventory Part Settings)

INVEN VAL MHTD = STANDARD COST,

INV PART COST LVL = COST PER SERIAL.

SUPPLIER INVOICE PRICE CONSIDERATION -= IGNORE INVOICE PRICE

ZERO COST = ZERO COST FORBIDDEN.

Single Level Bill/Product Structure 80 plus components. (8 operations per single routing)

Components: (Inventory Part Settings)

IN VEN VAL MHTD = WEIGHTED AVERAGE

INV PART COST LVL = COST PER PART

SUPPLIER INNOICE PRICE CONSIDERATION -= TRANSACTION BASED (ALSO ADDED ORDER BASED LOT/BATCH TRACKING (MASTER/ENG PART) TO MINIMISE PRICE VARIATION)

ZERO COST = ZERO COST FORBIDDEN.

Testing in CFG/DEV using LIFO for past months. Interest5ed in variances PMRP v MRP.

LIFO for Components for sure. Uncertain about Finished parts. Large organization Manufacturing 10-15%.

Summary of operations

Electrical Finished Product. (serially tracked) Electronic components major part of product structure. Global SCM. Local Suppliers. (Customer base Bottling/Packaging/Computing). Project and Wholesale division also. Pumps Valves accessories etc.

Hope this helps.

Regards,

Sean.

Hi, 

Many thanks for the information. Very helpful. 

When working with LIFO, it has limitations.  Sorry - environments are down and can’t test. I’m pretty sure LIFO / FIFO will not allow the cost per serial as LIFO would create it’s own cost groups (my term not the correct IFS term) where a cost and quantity makes the groups. 

Test it, I have clients using LIFO / FIFO successfully, just not many of them, and it’s been years since I tested. 

I think based on needs (mandate from above) and system usage it’s probably OK.   Downside of LIFO (if I remember correctly) is assume you purchased part 101 for a project. Assume PO was 100.   Now you purchase more part 101 maybe for another project and the cost was 125.    If you had similar cost set up as you do now - STD Cost per serial, you will find it's more accurate than LIFO. LIFO will take the 125 cost. I tested a few years ago, so I may not be entirely correct. 

Test, Test, Test. 

Best regards, 

Thomas 

Adding to the information provided by ​@Thomas Peterson for LIFO.

• It can be used only with Cost per Part.
• Negative On Hand inventory is not allowed.
• For Supplier Invoice Consideration you can use only 'Ignore Invoice Price' . Transaction Based is only for Standard Cost or Weighted Average, and Periodic Weighted Average is only for Standard Cost.

Thank you so much. I am going to recreate a product structure using LIFO parts and do a complete test to make sure I understand it all. MASTER DATA SET UP > PROJECT > CUSTOMER ORDER > ASSEMBLY / MANUFACTURE > SHIPMENT TO CUSTOMER. Will also check the financial postings. The finished (shipped) item must be serially tracked. So, looking at the reply from Matt looks like that will cause an issue. Cost Per Part. At moment we use cost per serial. Will check. Serially tracking can be used but we cannot use cost per serial. Thx again