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Accounting Best Practices, Fifth Edition by Steven M. Bragg Englewood, Colorado

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16–5. Modify the Bills of Material for Temporary Substitutions

When a company has some excess items in stock that could be used in an existing product, the materials management staff is sometimes unwilling to use the part, because they perceive it to be so difficult to modify the bills of material and all related parts ordering systems. The result is excess parts sitting in the warehouse, representing an excessive level of inventory investment.

The solution is to create a simplified system for modifying the bills of material for temporary substitutions. To do so, there must first be a written authorization from the engineering department, specifying exactly which component is to be removed from an existing bill of material, which one is to replace it, the quantities involved, and the dates during which this change will be in effect. The materials management staff needs to be involved in the date range, since they must schedule a production run that will use up the replacement part. Finally, the person in charge of bill of material changes must make the swap in the bill of material file. Of particular concern here is that the person also reset a reorder flag for the replacement part in the item master file, so that the material requirements system does not automatically reorder the part just because it now appears to be an active part.

These steps can be reduced if the bill of material database already contains a feature allowing for the short-term swapping of parts. If this is ...

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