Why the Item Master Is Your Company's DNA
Item Master Management Is Essential to Understanding the Health of Your Company
Geneticists can look at your DNA and tell you what you're made of, where you came from and even what illnesses you might be prone to. In that same way, supply chain professionals can analyze the item masters of your products and figure out:
- Who your suppliers are
- What raw materials and components you use
- How much inventory you should carry
- What your profit margins should be
Careful item master management is essential to understanding the overall health of your company.
What Is an Item Master?
Each of the products that your company makes and sells should have an item master. The item master is a file or record that is typically housed within your enterprise resource planning (ERP) system.
The item master should be set up when a product is introduced into your company. The item master should be carefully built (oftentimes, companies will have a person whose sole job is item master maintenance) and will contain, at a minimum, the following information:
- Item Name
- Item Description
- Bill of Materials (BOM)
- Cost of Goods (COGS)
- Manufacturing Routers
- Manufacturing and Supply Lead Times
- Safety Stock Levels (if applicable)
- Minimum Order Quantities (MOQ)
- Order Multiples
But don't limit yourself to those inputs. Your ERP will have standard fields for you to populate for your item master, but there will also be custom fields that you can use to tailor the item master to your company's specific needs.
From the item master, your ERP will take information to generate data for:
- Inventory Value
- Purchasing Queues
- Production Job or Work Orders
- Manufacturing Variances
- Purchase Price Variances (PPV)
- Financial Analyses
The information held inside of an item master is akin to the gene strands inside of a DNA molecule. Your DNA will tell you what you're made of. Your item master will tell you what your company is made of.
How Do You Use an Item Master?
Even though it's an incredibly valuable repository of information, you may actually never open up an item master. Unless your job is is to maintain your company's item master (cleverly enough, the jobs are often called Item Masters), you might actually be prevented from going in and making changes to an item master.
However, if your job is within your company's supply chain function (planning, purchasing, inventory control, demand management, etc.) or in finance or in another management area—you are using information that finds its home within your company's item master.
Your products' cost of goods are housed within the item master. So if you want to know the value of your inventory, you're going to take the number of items you have on hand and multiply that number by the costs in the item master.
And, oh by the way, if your product is an assembly that's made up of multiple levels of sub-assemblies and components—all of those sub-assemblies and components are going to have an item master, too.
Purchase Price Variances and Manufacturing Variances
Are you paying the correct amount for items that you purchase? Use the item master to find out. Take your actual purchase prices and compare them to the cost (often called the standard cost) found in your item master.
The beauty of your item master is that it's a living file. If your item master says that you purchase Product X for $10 and you discover that you've been purchasing Product X for the past year for $9, then someone at your company (maybe not you) can revise your item master so that the standard cost is equal to the purchase price.
The same holds true for manufacturing times. If your item master has been set up with 45 minutes as the manufacturing time for Product Y and, after running a manufacturing variance report, you discover that it actually takes you 55 minutes to make Product Y, you (or someone else at your company) can revise the item master.
Along with paying your employees, purchasing your inventory is one of the highest cost activities that you and your company do on a regular basis. You should be relying on your ERP to tell you what to buy and when to buy it—and guess where your ERP goes to before it sends you your purchasing signals?
You guessed it—your item master.
Your item master houses these critical purchasing data points:
- Lead time
- Order multiples
- Minimum stock levels
- Maximum stock levels
- Purchase cost
Your ERP uses that information and reconciles it with current inventory levels and customer or production demand to drive purchasing requirements.
If your item master is inaccurate, then you could be buying too late (i.e. your supplier lead time is really 6 weeks but your items master says that it's only 3 weeks). Or you could be ordering too much (if your MOQ says that the minimum units you can buy of Product X is 100 units, but your supplier will actually sell you 50). Or your max stock level won't allow you to purchase the quantity you need to cover your customer demand.
And, again, purchase price variances (PPV) is a metric that many companies track—and your PPV metric can be reported incorrectly if the purchase (i.e. standard) cost in your item master is incorrect.
Who Are These Item Masters?
Yes, sometimes a person's job is called the Item Master. Those jobs are for people who manage item masters, but they're not called Item Master Managers (for the most part). Item Master looks way cooler in an email signature.
Item Masters typically report into a Supply Chain Manager, Materials Manager, Inventory Control Manager or even a Finance Manager.
If you're an Item Master, you need to have a meticulous attention to detail. You need to be obsessively compulsive about your ownership of your company's item master. And you need to be able to make sure that every detail within your company's item master is accurate.
Because the only time management cares about the DNA—the item master—is when there's something wrong with it. And that seemingly wrong little detail drove a purchasing or inventory or planning error—causing money to be spent when it didn't need to be.