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Improve Inventory Management with New Standards from Committee E53

Managing the inventory of commercial organizations is a massive task on many levels. Three new standards from ASTM Committee E53 on Property Management Systems offer valuable techniques for improved inventory control. A national representation of property managers and related industry sectors developed and approved the standards July 10.

Two address property valuation:

E 2219, Standard Practice for Valuation and Management of Moveable, Durable Property; and
E 2220, Standard Practice for Establishing the Full Valuation of the Loss/Overage Population Identified During the Inventory of Moveable, Durable Property.

“These standards are not intended to change how organizations financially account for property, but will allow property managers to allocate their limited resources to the management of those resources with the highest value to the organization,” notes ASTM Committee E53 chairman Stephen Michelsen, executive vice president, National Property Management Association, Dunedin, Fla. “The highest value is determined by following the calculations and by using the various resource allocation ratios contained in the standards.”

E 2219 and E 2220 follow standards issued by the committee last year. “The earlier standard [ASTM E 2132] on Physical Inventory of Moveable, Durable Property identified accepted inventory practices and the conditions under which the various inventory methods could be reasonably applied,” says Michelsen. “A second standard on Lost, Damaged and Destroyed Property [ASTM E 2131] went farther and took the possible outcomes of those surveys and linked them to risk labels to be used to characterize inventory management organizations. “Property managers who have conducted inventories and are aware of the results (in terms of missing, lost or destroyed items) need to associate that ‘loss’ with a cost to the organization.

“The two latest standards [E 2219 and E 2220] do that in a historic break from predicating all such losses on the original acquisition value of the missing item,” he notes. “In the case of most inventory shortages, acquisition value is irrelevant. It is a sunk cost, not a value. By moving to ‘contributory valuation,’ property managers are placing the highest priority on managing the assets that are generating profit or are considered to be mission-critical, and by using a lesser standard to protect assets not earmarked for immediate use.”

Michelsen says ASTM’s third new document, E 2221, Standard Practice for Administrative Control of Property, covers administrative control thresholds. “Generally, there is very little policy guidance regarding the dollar value at which organizations should record and account for movable, durable property. Most organizations set some threshold at which nonexpendable property is added to the organization’s property records and subsequently accounted for over time. Typically, these thresholds are based on local circumstance and, as a consequence, there is little or no standardization across the profession. The property management costs in terms of dollars and support personnel are significant and increase disproportionately as the control threshold is reduced to lower dollar values.

“For example,” he continues, “in many organizations the difference in controlled items increases by 12 to 18 percent if the control threshold is reduced from $7,500 to $5,000. The size of the controlled inventory would be much greater if the threshold was reduced to $500. In fact, most organizations control their inventories between the $500 and $5000 limits. The latest standard takes the results of inventories conducted in accordance with the ASTM models and establishes administrative control threshold limits consistent with the risks of loss as evidenced by the inventories. The standards reward the best performing organizations by setting higher limits and thereby reducing management costs and penalize high risk organizations by recommending lower control thresholds and increasing management costs.”

The 161 members of Committee E53 develop standards by voluntary consensus. The management-system criteria they create includes performance standards, practices, metrics, and effectiveness methods for the management and administration of durable, movable assets.

For further technical information, contact Pat A. Picariello, director, Corporate Development, ASTM International (610/832-9720). //

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