An introduction to valuing your inventory from start to finish

Courtesy of Jewelers Mutual Insurance Co.

One of the best things you can do to protect your business from a loss of any kind is to keep current inventory records. It can seem a daunting prospect, but it’s especially important for jewelry manufacturers and designers to measure the changing values as they transform raw materials into finished goods.

Because each jewelry operation differs in size, method of operation, and type of inventory, it’s difficult to recommend one inventory system that will work for every firm. Smaller companies may still track their inventory the old-fashioned way, but computer-based inventory systems are affordable and easy to use. Contact your accountant or your Jewelers Mutual agent for a recommendation that meets your needs.

Once you have a tracking system in place, you should re-examine it once a year to make sure it continues to meet your evolving needs. Changes in quantities used should be noted daily. An inventory should include:

Descriptions of raw materials, parts, samples, finished goods and merchandise in such a manner that you can trace an item to its original source document, such as a purchase invoice.

Exact values of raw materials, parts, samples, finished goods and merchandise, rather than rounded values. Remember, jewelry lines carried by salespeople must also be counted in the annual inventory.

Dates chronicling the day on which inventory was received and the day on which raw materials or parts are used.

Inventory numbers should be added at a consistent point in your manufacturing or design process, so you can track as raw materials become finished goods.

The value of your inventory can fluctuate depending on market values for metals, gemstones, and other materials. You may want to consider purchasing a Cost Plus option from Jewelers Mutual, which can help bridge the changing values of your inventory. Remember, as you track your resources, be sure that your company has enough coverage for peak production times when you may have more inventory on hand than usual.

Valuing Raw Materials and Parts

Raw materials and parts include precious metals, plates, tubing, shot, findings, unset mountings, and similar materials used to manufacture jewelry. It’s easiest to inventory this type of property by weight, valuing it when it enters and leaves your inventory.

As material is used, subtract the weight from the inventory and value it at cost for that day. When new material is purchased, add the weight and value it at cost for that day. To track your changing supply, be sure to record additions, subtractions, and balances daily.

Because the value of gold and other precious metals fluctuates, you should amend values of those materials on the next physical inventory and provide the updated information to your insurance company as the basis for your premium.

Scrap Gold and Other Metals

If you purchase jewelry from consumers with the intent to resell it to a refiner, you should insure the metals while they are in your possession. Value the metal at your purchase price, the market value, or the refiner’s confirmed purchase price. Unlike some other insurers, Jewelers Mutual offers a Scrap Gold and Metals Coverage Option, to insure scrap gold and other metals.

Tracking Loose Diamonds and Colored Stones

Diamonds and colored stones add significant value to your inventory and should be tracked closely in the manufacturing and design process, especially if you have a large operation and many employees.

Gems are treated differently depending on their weight. For gems over 0.20 carat, each stone should have an individual inventory number and be valued at cost on the date received. Gems under 0.20 carat that are purchased in bulk and equal in color, cut, clarity and carat weight can be inventoried collectively by weight. The stones are valued at the price per carat on the date when they enter your inventory and leave your inventory. If smaller stones do not share these characteristics, each stone should receive an individual inventory number and be valued on the date received.

Finished Goods Made by the Jewelry Maker

Remember, the sum is greater than its parts. Manufacturers should pay special attention to valuing finished goods as the manufacturing process is completed. Your inventory records should include each item’s value, including the cost of raw materials used, component parts, gemstones and labor involved in the process.

When you manufacture a large quantity of an item, you will want to keep a running inventory to track your merchandise and record the number of items available and sold. When an item is sold, record the inventory number on an appropriate sales form and delete the item from your inventory.

A loss during the delivery process can be especially frustrating. Jewelers Mutual recommends that you maintain a complete and separate inventory for items that are temporarily away from your premises. This inventory should include items that are currently shipping to their new owner and items trusted to an authorized party, such as a commissioned salesperson. Upon a successful delivery or sale, the item should be removed from your inventory.

Custom-Made Jewelry

Custom-made jewelry can be tricky to value. As you design a piece, track the cost of the component parts, value of your time to design and manufacture the piece, and the date the item was completed. Record the supplier and invoice number that apply to the component parts. Alternatively, you can value custom-made items based on your wholesale price (the price you offer retailers) minus your profit margin.

Now Is the Time

In the unfortunate case that you suffer a major loss from fire, theft or a natural disaster, an updated inventory is one of your best tools in working with your insurance company towards a quick recovery.

Keep a copy of your most recent inventory in a location away from your business facility, housed securely with other critical business information such as your insurance policy and tax returns. Contact information for your insurance agent, accountant, attorney, bank officer and alarm system management and safe vendors will also come in handy during a crisis.

There’s no time like the present to build a stronger and more secure business. Establishing and maintaining an inventory takes time and requires daily attention from you or your employees, but remember, this effort is an investment in your security and your company.

For more information about valuing your inventory, visit Jewelers Mutual’s website at JewelersMutual.com.

MJSA exclusively endorses Jewelers Mutual Insurance Company’s commercial and personal jewelry insurance products. To learn more about Jewelers Mutual’s coverages and to find an experienced insurance agent in your area, contact Jewelers Mutual at 1-800-558-6411.