In this article, we will explore what UOM (Unit of Measure) in inventory is and its common types. We will also share our 10 step process to effectively manage it. Read on to learn more.
UOM stands for "Unit of Measure." In inventory and supply chain management, UOM is a standard of measurement for counting or valuing stock items. Understanding the unit of measure is essential for stock control, order fulfillment, and accurate record-keeping.
Example: The bolts are measured in UOM of "dozens," so an inventory count of 5 means there are 60 individual bolts in stock.
Units of Measure (UOM) in inventory can be categorized in two main ways: based on the physical properties they describe and based on their functional use within inventory and supply chain processes. Let’s explore these below:
Here are some of the most common physical property UOMs:
Here are some of the most common functional UOMs:
UOM (Unit of Measure) in inventory is important for a number of reasons, some of the most common reasons include:
Proper UOM ensures that items are counted, stored, and recorded correctly. Without a consistent UOM, there's a risk of miscounts which can lead to stockouts or overstock situations.
Using a consistent and understood UOM is essential when placing orders with suppliers or fulfilling orders for customers. It ensures that the right quantity of goods is ordered, received, shipped, and invoiced.
Accurate UOM helps in planning storage space, determining reorder points, and optimizing warehouse layouts. It allows for efficient utilization of storage spaces and helps in minimizing wastage of resources.
With a standardized UOM, businesses can analyze sales, determine best-selling products, calculate turnover rates, and forecast future demand with higher precision. This aids in making strategic decisions related to procurement, sales, and inventory management.
Use our 10 step process to manage your UOM in inventory effectively. Simply follow the process below:
Inventory items should have a primary UOM which is the standard unit used for internal tracking and stock counting.
Example: For screws, the primary UOM might be "each." So, if a bin contains 500 screws, the inventory count would be recorded as 500 each.
Determine conversion rates between different UOMs especially if you order, stock, or sell in varying units.
Example: If light bulbs are ordered in boxes of 10 but stocked individually, you'd need a conversion rate of 1 box = 10 each.
Specify the UOM in which items are ordered from suppliers which may differ from the stocking UOM.
Example: While paper might be stocked by the "ream," it's ordered by the "pallet," where 1 pallet = 200 reams.
Indicate the UOM for outgoing shipments and sales transactions to ensure consistency in customer interactions.
Example: Drinks might be sold in "cases" to distributors. If an order is for 20 cases, it might translate to 240 bottles if 1 case = 12 bottles.
Ensure your inventory management software supports multiple UOMs and can handle conversions seamlessly.
Example: When 5 crates of apples (with 100 apples per crate) are received, the system should automatically update the inventory by 500 apples.
Periodically verify that the UOMs are being used consistently and correctly across all transactions and records.
Example: If a staff member mistakenly orders 10 boxes of pens thinking each box contains 50, but it actually contains 100, an audit would catch this discrepancy.
Ensure that all staff involved in inventory management, purchasing, and sales are well-trained on UOM standards and conversions.
Example: A new staff member should understand that when restocking shelves, 4 packs of batteries, with 12 batteries in each pack, equates to placing 48 individual batteries on the shelf.
Over time, suppliers might change packaging or quantities. Ensure that UOM conversions are updated to reflect these changes.
Example: If a vendor previously supplied juice in cartons of 24 bottles but has shifted to cartons of 20 bottles, the conversion rate in the system needs an update.
Ensure suppliers understand and confirm your UOM requirements to prevent miscommunications and order discrepancies.
Example: When placing an order for 15 rolls of fabric, both the buyer and supplier should be clear that 1 roll equals 50 meters.
Leverage the consistency of UOM in your analysis to get a clearer picture of sales trends, stock levels, and reorder points.
Example: Analyzing sales by the "dozen" for pastries can reveal that 120 dozen were sold last month. This gives a clear picture for future production planning.
Whitford Home Essentials is a retailer that aims to ensure accurate stock tracking and streamline operations. Here’s how the company implemented our simple 10 step process:
Every product in Whitford's inventory, like candles, has a primary UOM for stock counting. For instance, if a shelf displays 300 candles, the inventory count is 300 each.
Whitford determines conversion rates for items with different purchases and stocking UOMs. For bed linens, they might purchase in "sets" but stock individually. So, 1 set = 4 pieces (including pillowcases, a fitted sheet, and a flat sheet).
While Whitford stocks towels individually, they order from suppliers in "bales." If they order 10 bales and each bale contains 50 towels, they're effectively ordering 500 towels.
When selling dinnerware sets to online customers, Whitford might ship in "boxes" where 1 box contains a 6-piece dinnerware set.
Whitford's system needs to automatically handle UOM conversions. When 20 cartons of glass tumblers are received and each carton has 24 tumblers, the system should add 480 individual tumblers to the inventory.
Periodically, Whitford checks UOM consistency. For instance, they found once that a staff member mistakenly recorded receiving "boxes" of lamps when they were actually "cases," with each case having 4 boxes.
New staff at Whitford are trained to understand UOM distinctions. They learn that restocking 3 packs of curtain rings with each pack containing 10 rings means placing 30 rings on sale.
Recently, Whitford's cushion supplier changed their packaging from bags of 5 to boxes of 6. Whitford promptly updated their UOM conversion rates to reflect this.
When Whitford orders 50 rolls of wallpaper, their supplier confirms that each roll covers 30 square meters. This ensures clarity on both sides.
Whitford evaluates sales trends using consistent UOMs. By analyzing sales by the "set" for kitchen utensils, they identified they sold 150 sets last month. This guides their restocking strategy.
We hope that you now have a better understanding of what UOM (Unit of Measure) in inventory is and how to effectively manage it to ensure accurate stock recording.
If you enjoyed this article, you might also like our article on the service level inventory or our article on inventory models.
