According to Steven M. Bragg, author of Inventory Best Practices (Wiley, 2004) and Inventory Accounting: A Comprehensive Guide (Wiley, 2005), this manual should list the main policies under which the warehouse department operates, such as those listed in the exhibit below. These policies deal with key materials handling issues, and are usually limited to just a few pages. Anything longer probably indicates an excessive degree of control or some confusion in the difference between a policy and a procedure.

A policy is one that sets a boundary for an activity (e.g. defining an obsolete inventory item as one having been withdrawn from production). A procedure, however, defines the precise activities taking place within the boundaries of the policies created. A procedure is usually sufficient to use as a guideline for an employee who needs to understand how a process works. When combined with the proper level of training, the policies and procedures manual is an effective way not only to increase control over inventory, but also to increase the efficiency with which it is handled.

Though there are few excuses for not having such a manual, there are some pitfalls to consider when constructing it, as well as for maintaining and enforcing it. They are as follows:

Not enough detail. A procedure that does not cover activity steps in a sufficient degree of detail is not of much use to someone using it for the first time; it is important to list specific forms used, computer screens accessed, and fields on those screens in which information is entered, as well as the other positions either supplying information for the procedure or to which it sends information. It may also be helpful to include a flowchart, which is more understandable than text for some people.

Not reinforced. A procedures manual doe snot do much good if it is immediately parked on a remote shelf. Instead, one must make it an integral part of all training programs and include it in periodic discussions regarding the updating and improvement of key processes. Only through constant attention will the manual be used to the fullest extent.

Not updated. Even the best manual will become obsolete over time, as changing circumstances alter procedures to the point where the manual no longer describes conditions as they currently exist. When this happens, no one bothers to use the manual. Accordingly, it is necessary to update the manual whenever changes are made to the underlying systems.

Too many procedures. A common problem is for the procedures manual never to be released because it is never "finished" -- someone wants to include every conceivable procedure. It is better to issue the manual promptly with just the key procedures covering the bulk of all inventory transaction volume, and address lesser procedures at a later date. This approach gets the key information to those employees who need it the most, and does so quickly.

Exhibit: Sample Policies Page

• ABC classification. The warehouse manager shall review the ABC classification of all items in stock at least once a year, and rearrange inventory storage within the warehouse based upon this revised classification.
• Bill of materials. Only the engineering department shall make changes to the bill of materials database.
• Delivery. The company shall deliver completed customer orders no later than two days following receipt of those orders.
• Drop shipping. The company shall endeavor to have suppliers drop ship items directly to customers whenever possible.
• Engineering changes. The engineering department shall only implement an engineering change order after the proposed change has been formally reviewed and approved by the cost accounting, production, and manufacturing departments.
• Hedge inventory. The company shall not invest in hedge inventories for such events as possible strikes or supplier disputes without prior approval by senior management.
• Obsolescence. Inventory parts shall be designated obsolete once the products of which they are components have been withdrawn from production and there is no recent evidence of service or repair requirements.
• Putaway. Inventory items shall be putaway immediately after receipt.
• Supplies reordering. Supplies not tracked through the inventory system shall be visually reviewed at least daily for reordering supplies.