SOP-002: Inventory Management

Standard Operating Procedure for Inventory Management

Field	Detail
SOP Number	SOP-002
Version	1.0
Effective Date	2026-07-26
Prepared By	Lofty Golden Oil Ltd — IT & Operations
System	Lofty Golden Oil ERP
URL	https://loftygoldenoil.com

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1. Purpose

To maintain accurate inventory records for all raw materials, work-in-progress, and finished goods. This SOP ensures proper tracking of inventory movements, adjustments, and valuations to support operational efficiency and financial accuracy.

2. Scope

This SOP covers all inventory-related operations within the Lofty Golden Oil ERP system, including:

• Receiving goods from suppliers
• Stock adjustments (damaged, expired, corrections, returns)
• Physical stock takes
• Low stock monitoring and reorder
• Expiry management
• Product management (additions, updates, pricing)
• Inventory reporting

3. Definitions

Term	Definition
SKU	Stock Keeping Unit — a unique identifier for each product
BOM	Bill of Materials — list of raw materials needed to produce one unit of finished goods
Safety Stock	Minimum stock level maintained to prevent stockouts
Reorder Level	Stock level at which a new purchase order should be placed
Dead Stock	Products that have not moved in 90+ days
Stock Adjustment	A manual correction to inventory quantities
Physical Count	Manual counting of actual stock on hand

4. Procedures

4.1 Receiving Goods

When: Each time a delivery arrives from a supplier.

Step-by-step:

1. Verify delivery against Purchase Order (PO):

   • Retrieve the corresponding PO from Purchases → Purchase Orders.
   • Check the delivery note against the PO for:
     • Product names and SKUs
     • Quantities ordered vs. delivered
     • Unit of measure
     • Batch/lot numbers (if applicable)
     • Expiry dates (for perishable items)

2. Create Purchase Record in System:

   • Navigate to Purchases → + New Purchase.
   • Select the supplier from the dropdown.
   • Reference the original PO number.
   • Enter each item with:
     • Product (select from inventory)
     • Quantity received
     • Unit cost (as per PO or invoice)
   • Attach the supplier invoice and delivery note (scan/photo).
   • Save the purchase record.

3. Inspect and Count:

   • Physically count the delivered items.
   • Inspect for damage, quality issues, or expired products.
   • Record any discrepancies between the delivery note and actual count.
   • If damage is found, separate affected items and note on the purchase record.

4. Update Inventory:

   • Saving the purchase record will automatically increase inventory levels for the received products.
   • Verify the updated stock levels in Inventory → Products → [Select Product].

5. Handle Discrepancies:

   • If delivered quantity < PO quantity: note the shortfall and contact the supplier.
   • If delivered quantity > PO quantity: do not accept excess without manager approval.
   • If wrong product delivered: do not accept; contact supplier for replacement.
   • Document all discrepancies in the purchase record notes.

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4.2 Stock Adjustments

When: Inventory needs to be corrected for any reason outside normal sales/production movements.

When to Adjust:

Reason	Description	Example
Damaged Goods	Products physically damaged during storage/handling	Leaked cooking oil containers
Expired Products	Products past their expiry date	Oil batch past best-before date
Count Corrections	Discrepancies found during stock take	System shows 100L, physical count is 95L
Theft/Loss	Suspected or confirmed theft or unexplained loss	Missing inventory after security review
Returns	Customer returns of previously sold goods	Returned damaged product
Production Variance	Actual consumption differs from BOM expectation	Extra raw material used due to machine fault

Step-by-step Adjustment Process:

1. Navigate to Inventory → Stock Adjustments → New Adjustment.

2. Select the Product from the dropdown list.

3. Enter the Quantity:

   • Enter a positive number (+) to add stock (e.g., returned goods, found stock).
   • Enter a negative number (-) to subtract stock (e.g., damaged, expired, lost).

4. Select the Reason from the dropdown:

   • Damaged
   • Expired
   • Count Correction
   • Theft/Loss
   • Return
   • Production Variance
   • Other

5. Add Notes explaining the adjustment in detail:

   • What happened
   • When it was discovered
   • Who discovered it
   • Any corrective actions taken

6. Attach supporting evidence (photos, investigation reports) if applicable.

7. Click Save.

8. Approval Requirements:

   Adjustment Value	Approval Required
   < ₦50,000	Team Lead / Supervisor
   ₦50,000 – ₦200,000	Manager
   > ₦200,000	Managing Director

   • Adjustments are queued in the approval workflow.
   • The approver receives a notification in the dashboard.
   • Once approved, the inventory update takes effect immediately.

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4.3 Stock Take Procedures

Frequency: Monthly (end of month), with quarterly comprehensive counts.

Monthly Physical Count:

1. Preparation (2 days before count):

   • Notify all staff of the upcoming stock take.
   • Freeze inventory movements during count window (if possible).
   • Print blank stock count sheets from Inventory → Stock Take → Print Sheets.
   • Assign counting teams (minimum 2 people per area).

2. Counting Day:

   • Count all products in each storage area.
   • Record counts on the stock count sheets.
   • A second person should verify counts (double-count method).
   • Sign off on completed count sheets.

3. Data Entry:

   • Navigate to Inventory → Stock Take → Enter Counts.
   • Enter the physical count for each product.
   • The system auto-calculates the Variance (physical count − system count).
   • Upload or attach signed count sheets.

4. Reconciliation:

   • Review all variances.
   • Investigate significant variances (> 2% or > ₦25,000).
   • Create Stock Adjustments for confirmed variances (see Section 4.2).

5. Documentation:

   • Generate the Stock Take Variance Report from Reports → Inventory → Stock Take Report.
   • Include explanations for all variances.
   • Submit report to management for review.

6. Management Approval:

   • Variances exceeding ₦100,000 total require Manager approval.
   • Variances exceeding ₦500,000 require MD approval.

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4.4 Low Stock Response

When: Dashboard alerts show products at or below reorder level.

Step-by-step:

1. Monitor Alerts:

   • Check the Low Stock Alerts panel on the dashboard daily.
   • Review alerts at the start and end of each business day.

2. Investigate Cause:

   • Determine why stock is low:
     • Higher-than-expected sales?
     • Production consuming more than planned?
     • Delivery delay from supplier?
     • Inventory discrepancy?
   • Check recent sales and production data for the product.

3. Create Purchase Order or Requisition:

   • If the purchase is within your budget authority:
     • Navigate to Purchases → + New Purchase Order.
     • Select supplier, product, quantity, and estimated cost.
     • Save and submit for approval.
   • If the purchase exceeds your budget authority:
     • Create a Requisition via Requisitions → + New Requisition.
     • Select type: Purchase Requisition.
     • Enter product details, quantity, estimated cost, and justification.
     • Submit for the approval workflow.

4. Escalate if Budget Exceeds Authority:

   Requisition Value	Approval Level
   < ₦100,000	Supervisor
   ₦100,000 – ₦500,000	Manager
   ₦500,000 – ₦2,000,000	Accounts + MD
   > ₦2,000,000	MD (final)

5. Follow Up:

   • Track the requisition/purchase order status until delivery.
   • Update the expected delivery date if there are delays.

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4.5 Expiry Management

When: Dashboard shows products expiring within 2 weeks.

Step-by-step:

1. Monitor Expiring Soon Alerts:

   • Check the Expiring Soon panel on the dashboard daily.
   • Products are flagged when they are within 14 days of their expiry date.

2. Prioritize Movement:

   • For products expiring within 7 days:
     • Prioritize these for outgoing sales/production.
     • Consider promotional pricing to move stock quickly.
   • For products expiring within 14 days:
     • Review usage rates and determine if they can be consumed in time.

3. Process Expired Items:

   • When a product reaches its expiry date:
     • Navigate to Inventory → Stock Adjustments → New Adjustment.
     • Select the product.
     • Enter the quantity to subtract as a negative number.
     • Select reason: Expired.
     • Add notes: expiry date, batch number, disposal method.
     • Submit for approval.

4. Dispose per Company Policy:

   • Expired cooking oil must be disposed of in compliance with:
     • NAFDAC regulations
     • Environmental guidelines
     • Company disposal policy
   • Record the disposal method and date in the adjustment notes.
   • Retain photographic evidence of disposal.

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4.6 Product Management

4.6.1 Adding New Products

1. Navigate to Inventory → Products → + New Product.
2. Enter the following fields:
   • Product Name — descriptive name (e.g., "Lofty Golden Palm Oil 5L")
   • SKU — unique stock keeping unit (see conventions below)
   • Category — select from: Raw Material, Finished Good, Packaging, Consumable
   • Unit of Measure — Litres, Kilograms, Units, Cartons
   • Unit Price — selling price per unit
   • Cost Price — average cost per unit
   • Reorder Level — minimum stock level before alert
   • Maximum Stock Level — optimal maximum stock quantity
   • Expiry Tracking — Yes/No (enable for perishable items)
   • Description — additional product details
3. Save the product record.

4.6.2 SKU Assignment Conventions

Product Type	SKU Format	Example
Finished Goods (Oil)	LG-{Type}-{Size}	LG-PO-5L (Palm Oil 5L)
Raw Materials	RM-{Material}-{Grade}	RM-PLT-A (Palm Leaf, Grade A)
Packaging	PK-{Type}-{Size}	PK-BTL-5L (Bottle 5L)
Consumables	CS-{Item}-{Code}	CS-GLV-01 (Gloves, Code 01)

4.6.3 Categorization Rules

• Every product must belong to exactly one category.
• Categories align with the chart of accounts for inventory valuation.
• New categories require Admin approval.

4.6.4 Pricing Updates

1. Navigate to Inventory → Products → [Select Product] → Edit.
2. Update the Unit Price or Cost Price as needed.
3. Add a note explaining the reason for the price change.
4. Save changes.
5. Price changes above 20% require Manager approval.

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4.7 Reporting

4.7.1 Weekly Stock Summary

• Generated by: Production or Storage team
• Generated on: Every Monday
• Contents:
  • Current stock levels for all products
  • Stock movements (receipts, sales, production consumption)
  • Net change per product
  • Low stock and overstock alerts
• Access via: Reports → Inventory → Weekly Stock Summary

4.7.2 Monthly Inventory Valuation

• Generated by: Accountant
• Generated on: Last business day of each month
• Contents:
  • Total inventory value (at cost)
  • Value by category (Raw Materials, Finished Goods, etc.)
  • Inventory turnover ratio
  • Write-downs for damaged/expired goods
• Access via: Reports → Inventory → Monthly Valuation

4.7.3 Dead Stock Identification

• Generated by: Accountant or Manager
• Generated on: Monthly
• Contents:
  • Products with zero sales in the last 90 days
  • Products with minimal movement (< 5% of average)
  • Recommended actions (discount, repurpose, dispose)
• Access via: Reports → Inventory → Dead Stock Report

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5. Role Responsibilities

Role	Responsibilities
Admin	User access management, system configuration, product category management, price override approvals, system-level stock adjustments
Production	Daily inventory monitoring, raw material stock levels, recording production consumption, initiating stock adjustments for production variance, submitting purchase requisitions for raw materials
Sales	Monitoring finished goods availability, recording sales (auto-decrements inventory), processing customer returns, reporting customer disputes on quantities
Accountant	Monthly inventory valuation, dead stock identification, financial reconciliation of inventory, approving adjustments over threshold, managing expiry write-offs, ensuring audit compliance
Manager	Approving large adjustments, reviewing variance reports, authorizing major purchases, strategic inventory decisions, budget allocation for reorders
MD	Final approval for adjustments/purchases exceeding all thresholds, policy decisions on disposal, capital expenditure approval

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6. Document Control

Version	Date	Author	Changes
1.0	2026-07-26	Lofty Golden Oil IT & Operations	Initial release

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End of SOP-002