Inventory control in the railway industry.

Abstract

STATEMENT OF THE PROBLEM: The purpose of this study was to determine the most acceptable methods and procedures to control inventories in the Railway Industry, with special emphasis on the acquisition and disbursement of materials and supplies used in the daily operations of the U.S. railroads. The procedures will help to provide the answers for the current practices of the U.S. railroads in relation to the following questions: 1. Are inventory quantities adequately protected against losses from theft, obsolescence, spoilage, and unauthorized withdrawals by employees? 2. Is there separate-item accountabil ity for both materi al and dollars for inventory quantities received, on hand, and issued? 3. Does proper authorization exist for inventory removed from stock? 4. Does control exist for accounting activities in the inventory records, cost accounting records or general ledger? 5. How is the accuracy of the inventory account balances verified? 6. Who is responsible for approving all major inventory adjustments? 7. Are fungible materials stored in identifiable lots and adequate records maintained? 8. Do inventories that are subject to considerable variation during the year require a periodic review? ABBREVIATED METHODS OF PROCEDURE: The procedure for completion of this research study involved the study of related literature and various inventory methods being used to implement inventory control in the railway industry. The step-by-step method of procedure was as follows: The basic concepts of inventory control were learned through on-the-job training; through attendance at a workshop; through attendance of a seminar; and through extensive library research. A study of inventory control in the railway industry was done through library research and personal interviews. Letters and questionnaires were sent to western, eastern, and southern U. S. railroads that were known to be developing new methods of inventory control. SUMMARY: The most pertinent material relating to the inventory control system developed through this study was found in questionnaires that were returned by a number of U. S. railroads and related literature. The railway industry's cost systems are summarized with a view toward determining the accuracy of the figures for inventory costs resulting from the method of cost accumulation in force. General ledger controlling accounts were maintained by a number of railroads. Most of the railroads separate materials and their records, and trace receipts and issues, so theft is left as the only method of fraud possible,and it is usually discoverable. Purchase orders for goods and materials have usually been placed as needed and for optimum quantities by most railroads. Most railroads try to detect material or merchandise which is defective or otherwise fails to meet company standards. Careless counting of quantities resulting in shipping more goods than are charged to a railway is store point is discouraged. Effective control and management of the railway industry depended heavily on use of adequate reports covering all activities relating to inventories. CONCLUSIONS: 1. Differences between book and physical inventories were ascertained, differences adjusted, and the amount of overage or shortage were properly accounted for. 2. All transactions pertaining to the issue of the inventory quantities were accounted for and entered in the controlling records. 3. An evaluation of the possibilities for errors in the inventory compilation system indicated that footings, extensions, and recapitulations of the inventory were rechecked by railway employees independent of those making the original computations. 4. Inventories subject to considerable variation during the year, required a periodic review to assure adequate coverage. RECOMMENDATIONS: 1. Control over all outward movement of materials should be centered in the store department, which should operate under the general requirement that nothing is to be released from the department without written authorization. 2. General ledger perpetual inventory records should be used for the preparation of interim financial statements. 3. Count tags or tickets should be pre-numbered and all numbers accounted for as soon as the tickets are turned in to ascertain that no tickets are omitted from the final inventory figures. 4. Annually, when the physical inventory is taken, variances between book balances and the physical inventory should be reported. 5. Extensions and footings should also be tested by the internal auditors, and they should verify the inventory variances developed from the comparison of the book and physical inventory amounts.