Material Reconciliation forms a vital part of the manufacturing process as it allows the manufacturers to ensure that the project is operating based on goals and outcomes determined by the company. Reconciliation elevates production capacity and outputs as manufacturers can compare standard data to actual data based on the inefficacies and variances during production.
What Is Material Reconciliation?
Material Reconciliation is the function used in accounting to document and check the efficiency of the quality of ingredients and raw materials used in the production process. It is used to check the number of components, types of components, and their quality at the beginning and end of the production cycle to compare and further comprehend the variations and resource utilizations during production.
Material reconciliation format is important for accurate measurement and tracking of the inventory. It allows manufacturers to compare the product count with the quantities estimated to plan for production. It maintains no inefficacies, and the components remain within the valid range of inputs and yield.
Benefits of Material Reconciliation
Knowing what is material reconciliation is crucial to maintain a consistent flow of production. It is one of the most crucial responsibilities of the materials or quantity surveyor. Improper monitoring and management of materials can lead to substantial business losses due to a lack of information on materials and ways to counteract the waste and underutilization of materials at the site.
Reducing inventory errors and discrepancies
If the project surveyors and managers do not take into account material reconciliation, it can lead to a lack of control over the raw materials involved in the process. It tracks the mistakes and analyses the materials from the start, making it easier to detect errors beyond the stated valid input-output range.
Improving decision-making through accurate inventory data
Material reconciliation offers a presentable representation of the data and covers good's movement as the foundation of material reconciliation. Manufacturers can define various goods movements that must be included in the material reconciliation process.
The updated data is collected and stored in the database. Manufacturing operations managers can use this genuine and correct inventory data to participate in better decision-making.
Saving time and resources
This function identifies the percentage and the difference between the resource utilization level between two comparison points. Manufacturers can access this information to identify resources wasted, moving on to devise a proper plan of action to save resources, time, and money. Regular material reconciliation, updation, and regulations make companies more aware of their resources and maximize their overall returns.
Ensuring regulatory compliance
It is necessary to stay up to date with the regulations and guidelines laid by regulatory agencies and government bodies. By streamlining the production process, material reconciliation helps businesses to minimize or eliminate penalties and develop economic projects complying with strict rules. This equips businesses to scale up better in the future.
Best Practices for Material Reconciliation
Material reconciliation has the potential to enable businesses to manage their expenses and budget effectively. Fields like construction require an enormous amount of materials to execute and complete the work and therefore, materials must be accounted for with the right approach in the bills for accounting. The decisions on quantity, type, and quality of the materials to be purchased are decided by authorized employers, operators, or contractors.
It is a crucial role played by quality surveyors and executives. Lack of optimized reconciliation causes delays in the clearance of bills.
Establishing clear processes and procedures
Defining clear processes and the procedures required to manage and verify materials is crucial. Some of the steps that the employer and contractor must undertake include estimating the quantities and sizes of the materials, procurement and getting approval on the materials, checking receipts from the supplier to verify the quantity, quality, and specifications of the materials manually, and recording the materials in the material ledger with important characteristics.
Regular physical inventory counts
Another vital aspect is to check the physical inventory count before devising the final materials records. The surveyor or operator must calculate the total number of items in the inventory. This is an important step to develop a reliable inventory system and avoid miscalculations and misrecorded data in the inventory.
Count and double-check the inventory count to ensure the number matches the ledger. The physical inventory could be lower due to resource split among various departments. This check allows the manufacturer to compare the utilization of materials via analysis of records of other departments, like shipment and sales receipts, to detect discrepancies, fraud, or theft.
Consistent recording and documentation
Document and record the data carefully. Once the inventory records are registered, the operators must compare the current and physical records recorded earlier.
The purpose of documentation and consistent data recording is to identify errors and issues like missing paperwork, miscalculations, supplier fraud, human error, backflushing, unlisted items, and a list of unusable items. Examine and promptly check the root of such causes. It allows the companies to make the required modifications in the production process and gain great results.
Reconciling discrepancies promptly
It is important to record the inefficiencies and discrepancies during production in an easy-to-understand and accessible format. The operators must focus on conceptualizing the root cause of the issue. They can discuss and conduct meetings with other team members to find the cause, reconcile records, and maintain reports to the extent possible.
Once the root cause of the discrepancies is found, it is crucial to develop a 'Stock reconciliation statement'. The statement should include an in-depth explanation of the discrepancy with the possible solutions and a comparison with previous records.
Leveraging technology for automation and efficiency
Consistent checking of inventory and material reconciliation reports and material reconciliation format is crucial to maintain accurate numbers and analysis. Make sure to use modern, technologically advanced methodologies to streamline production and maximize profits.
Modern technologies can seem to be time-consuming and overwhelming, however, they can assist companies to counteract delay, pay employees timely, and enhance sales.
The reconciliation reports must be documented and presented in graphical representations, such as spreadsheets like excel, and material reconciliation accounting with authorized inventory tracking systems.
Challenges in Material Reconciliation
A successful and effective material reconciliation process assists companies in registering and finding potential risks like fraud, data loss, and late payments, eradicating the differences in financial processes. Other discrepancies like receivables and deviations in the ledger can also be identified via efficient material reconciliation. It is crucial to enhance financial planning by learning patterns and differences between inventory records and actual inventory.
However, there are some challenges associated with material reconciliation. Some of the key challenges are listed below -
Human error
There are risks of human errors like entering manual data and calculating physical inventory, and circulating the data among the various departments. The process often gets time-consuming and requires multiple revisions and verification to reduce the scope of errors. A higher number of errors leads to a loss of crucial data and inaccuracies in the final output.
Technology limitations
It is important to use consistent, well-defined, and authorized technologies for reconciliation. If the company is deploying multiple methods and systems or does not have access to technologically advanced machinery, it can lead to inconsistent and fragmented processes.
Data inaccuracies
Modern manufacturing companies require real-time, accurate, quick, and transparent information in their database and accounting. Lack of knowledge, tools, and equipment can lead to a lack of control over the complete process. The spreadsheets in Excel need to be more capable of offering the optimum level of visibility. Without this, it can lead to long-term adverse effects on the organization's reputation and credibility. But, this issue can be avoided via the best material reconciliation and account reconciliation software.
Resource constraints
Lack of optimum resources also includes the need for highly equipped personnel with the experience and expertise to tackle the online systems. Multiple systems add to the system's complexity, and the company needs to employ additional resources like software, training, and equipment, to maintain visibility, detect fraudulent activities like theft or data alteration, and tackle unnecessary obstacles and mismanagement within the business.
Expert Material Reconciliation to Elevate Production Processes
Material management and reconciliation are undoubtedly essential processes in the production process. Timely and regular updates of the system, along with employing software to combat the challenges associated with reconciliation, can guide the company employers and employees to make the most of the system.
TranZact provides expert material requirements planning (MRP) software for SME manufacturing businesses to ensure seamless material allocation and record-keeping. As a cloud-based automation software, TranZact facilitates the delivery of high-quality products, while focusing on profit maximization for the manufacturer.
FAQs on Material Reconciliation
1. How often should a business perform material reconciliation?
It is recommended to conduct material reconciliation at the beginning and the end of the production process.
2. How does material reconciliation improve inventory management?
Material reconciliation allows businesses and companies to conduct checks and promptly verify resource data collection. It assists the companies in finding the difference between the physical inventory records and the recorded material data. Businesses can use this data to make the required adjustments and modifications in the process and make the numbers align with each other.
3. What are the key components of a successful material reconciliation process?
The main components include checking the physical inventory count of materials, comparing with the records, documenting material reconciliation at the end of production, checking discrepancies, and finding the root cause of the issue to optimize the production process.
4. Why is reconciliation important for manufacturing?
Reconciliation is essential because it can catch errors, save money and time, verify the production flow and keep it in check, and prevent fraud and manual alteration of data.
