Backflush Costing

Certified Inventory Optimization Professional (CIOP) is an end-to-end supply chain certification program. The certification consists of 30 modules focusing both on traditional and futuristic topics. The traditional topics are introduction to supply chain management, all about inventory, strategic business planning, forecasting, demand management, capacity management, sales and operations planning (S&OP), master scheduling (MPS), materials requirements planning (MRP) and production activity control (PAC). It also includes topics on procurement, warehousing, transportation, distribution, and packaging. The topic on the future trends such as Blockchain, Internet of Things (IoT), Robotic Process Automation (RPA), Machine Learning (M/L) and Artificial Intelligence (AI). There is a significant focus on supporting technologies such as forecasting and process mapping tools such as Microsoft Visio. In addition to the above indicated topics the participants need to master over 3000 terminologies in supply chain management.

Backflush Costing is a warehouse-level method for cost allocation of inventory. Backflush Costing for lean manufacturing enables the manufacturer to use the same exact back flush methodology used by the supply chain for reducing back-order costs. In the backflush costing methodology, the direct materials which are used are collected from the 

work in progress of the supply chain (WIP) cost category. Materials which are not used for any of the deliverables are placed on the back-order shelf. Every time there is a back order for a particular item which is already out of the inventory, a new request is placed for the replenishment of the inventory.

There are various ways of accomplishing Back flush Costing for lean manufacturing. The traditional way is done by the inclusion of a robust WIP into the production Flowcharts. A WIP provides the capability to determine the cost of all the products in a particular product category at any point in time. It also provides an easy way to update inventory data, eliminate back orders and consolidate various types of information. The Update Inventory function allows the generation of new product-pricing rules whenever a product variation occurs.

The benefits of using Back flush costing methodology for inventory control and backflush accounting are: it helps control inventory levels, reduces errors in accounting by eliminating the double entry of costs, improves accuracy, reduces the incidence of over ordering and improves the productivity of the manufacturing process. It also helps in controlling the overall process costs. Another significant advantage of using this method is its ability to determine the most economic method of maintaining inventory levels. The back flush costing software is designed to meet the diverse requirements of manufacturing companies for varied manufacturing processes. This software can be used for comprehensive back-order fulfillment, order management, single-part bulk order processing, or for simple back-order accounting.

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