In this article

UOM in Inventory: Everything You Need to Know in 2024

4 Minutes

In this article, we will explore what UOM (Unit of Measure) in inventory is and its common types. We will also share our 10 step process to effectively manage it. Read on to learn more. 

uom in inventory
Source: magestore.com

What is UOM in Inventory?

UOM stands for "Unit of Measure." In inventory and supply chain management, UOM is a standard of measurement for counting or valuing stock items. Understanding the unit of measure is essential for stock control, order fulfillment, and accurate record-keeping.

Example: The bolts are measured in UOM of "dozens," so an inventory count of 5 means there are 60 individual bolts in stock.

unit of measure
Source: aligni.com

Types of UOM in Inventory

Units of Measure (UOM) in inventory can be categorized in two main ways: based on the physical properties they describe and based on their functional use within inventory and supply chain processes. Let’s explore these below: 

1. Physical Property UOMs

Here are some of the most common physical property UOMs: 

  • Weight: Kilograms, grams, pounds, ounces, etc.
  • Volume: Liters, milliliters, gallons, pints, etc.
  • Length/Distance: Meters, centimeters, miles, yards, feet, inches, etc.
  • Area: Square meters, square feet, acres, hectares, etc.
  • Count: Single items, dozens, packs, gross, etc.
  • Time: Hours, minutes, days, weeks, etc.
  • Package: Box, carton, bundle, etc.
  • Pairs: Common for items sold in twos. This is a consistent unit of measure that's used across all functions for simplicity and uniformity, often for internal analysis or system configuration.
  • Sets: Items sold as a combination of different components.
  • Energy: Joules, kilowatt-hours, etc.

2. Functional UOMs

Here are some of the most common functional UOMs:

  • Stocking UOM (Inventory UOM): This is the unit of measure in which an item is usually counted or stored in inventory. For example, a product might be stocked by the "each" but ordered by the "case."
  • Ordering UOM (Purchase UOM): This is the unit of measure used when purchasing items. For instance, while you might stock nails by the pound or each, you might order them by the box or bag.
  • Shipping UOM (Sales UOM): This refers to the unit of measure in which items are shipped out or sold. An item might be sold by the "pallet" to wholesale customers for instance.
  • Standard UOM: This is a consistent unit of measure that's used across all functions for simplicity and uniformity often for internal analysis or system configuration.

unit of measurment
Source: magestore.com

Importance of UOM in Inventory

UOM (Unit of Measure) in inventory is important for a number of reasons, some of the most common reasons include: 

1. Accuracy in Stock Levels: 

Proper UOM ensures that items are counted, stored, and recorded correctly. Without a consistent UOM, there's a risk of miscounts which can lead to stockouts or overstock situations.

2. Effective Communication with Suppliers and Customers: 

Using a consistent and understood UOM is essential when placing orders with suppliers or fulfilling orders for customers. It ensures that the right quantity of goods is ordered, received, shipped, and invoiced.

3. Efficient Resource Utilization: 

Accurate UOM helps in planning storage space, determining reorder points, and optimizing warehouse layouts. It allows for efficient utilization of storage spaces and helps in minimizing wastage of resources.

4. Informed Decision Making: 

With a standardized UOM, businesses can analyze sales, determine best-selling products, calculate turnover rates, and forecast future demand with higher precision. This aids in making strategic decisions related to procurement, sales, and inventory management.

what is uom inventory
Source: pcdn.co

10 Step Process to Effectively Manage UOM in Inventory

Use our 10 step process to manage your UOM in inventory effectively. Simply follow the process below: 

Step 1. Define Primary UOM (Stocking UOM)

Inventory items should have a primary UOM which is the standard unit used for internal tracking and stock counting.

Example: For screws, the primary UOM might be "each." So, if a bin contains 500 screws, the inventory count would be recorded as 500 each.

Step 2. Establish Conversion Rates

Determine conversion rates between different UOMs especially if you order, stock, or sell in varying units.

Example: If light bulbs are ordered in boxes of 10 but stocked individually, you'd need a conversion rate of 1 box = 10 each.

Step 3. Set UOM for Ordering (Purchase UOM)

Specify the UOM in which items are ordered from suppliers which may differ from the stocking UOM.

Example: While paper might be stocked by the "ream," it's ordered by the "pallet," where 1 pallet = 200 reams.

Step 4. Determine UOM for Shipping and Sales (Sales UOM)

Indicate the UOM for outgoing shipments and sales transactions to ensure consistency in customer interactions.

Example: Drinks might be sold in "cases" to distributors. If an order is for 20 cases, it might translate to 240 bottles if 1 case = 12 bottles.

Step 5. Implement UOM in Inventory Software

Ensure your inventory management software supports multiple UOMs and can handle conversions seamlessly.

Example: When 5 crates of apples (with 100 apples per crate) are received, the system should automatically update the inventory by 500 apples.

Step 6. Conduct Regular UOM Audits

Periodically verify that the UOMs are being used consistently and correctly across all transactions and records.

Example: If a staff member mistakenly orders 10 boxes of pens thinking each box contains 50, but it actually contains 100, an audit would catch this discrepancy.

Step 7. Train Staff on UOM Best Practices

Ensure that all staff involved in inventory management, purchasing, and sales are well-trained on UOM standards and conversions.

Example: A new staff member should understand that when restocking shelves, 4 packs of batteries, with 12 batteries in each pack, equates to placing 48 individual batteries on the shelf.

Step 8. Regularly Review and Update UOM Conversions

Over time, suppliers might change packaging or quantities. Ensure that UOM conversions are updated to reflect these changes.

Example: If a vendor previously supplied juice in cartons of 24 bottles but has shifted to cartons of 20 bottles, the conversion rate in the system needs an update.

Step 9. Integrate UOM Consistency in Supplier Relations

Ensure suppliers understand and confirm your UOM requirements to prevent miscommunications and order discrepancies.

Example: When placing an order for 15 rolls of fabric, both the buyer and supplier should be clear that 1 roll equals 50 meters.

Step 10. Use UOM Data for Inventory Analysis

Leverage the consistency of UOM in your analysis to get a clearer picture of sales trends, stock levels, and reorder points.

Example: Analyzing sales by the "dozen" for pastries can reveal that 120 dozen were sold last month. This gives a clear picture for future production planning.

what is uom in inventory
Source: tranquilbs.com

Example

Whitford Home Essentials is a retailer that aims to ensure accurate stock tracking and streamline operations. Here’s how the company implemented our simple 10 step process:

Step 1. Define Primary UOM (Stocking UOM)

Every product in Whitford's inventory, like candles, has a primary UOM for stock counting. For instance, if a shelf displays 300 candles, the inventory count is 300 each.

Step 2. Establish Conversion Rates

Whitford determines conversion rates for items with different purchases and stocking UOMs. For bed linens, they might purchase in "sets" but stock individually. So, 1 set = 4 pieces (including pillowcases, a fitted sheet, and a flat sheet).

Step 3. Set UOM for Ordering (Purchase UOM)

While Whitford stocks towels individually, they order from suppliers in "bales." If they order 10 bales and each bale contains 50 towels, they're effectively ordering 500 towels.

Step 4. Determine UOM for Shipping and Sales (Sales UOM)

When selling dinnerware sets to online customers, Whitford might ship in "boxes" where 1 box contains a 6-piece dinnerware set.

Step 5. Implement UOM in Inventory Software

Whitford's system needs to automatically handle UOM conversions. When 20 cartons of glass tumblers are received and each carton has 24 tumblers, the system should add 480 individual tumblers to the inventory.

Step 6. Conduct Regular UOM Audits

Periodically, Whitford checks UOM consistency. For instance, they found once that a staff member mistakenly recorded receiving "boxes" of lamps when they were actually "cases," with each case having 4 boxes.

Step 7. Train Staff on UOM Best Practices

New staff at Whitford are trained to understand UOM distinctions. They learn that restocking 3 packs of curtain rings with each pack containing 10 rings means placing 30 rings on sale.

Step 8. Regularly Review and Update UOM Conversions

Recently, Whitford's cushion supplier changed their packaging from bags of 5 to boxes of 6. Whitford promptly updated their UOM conversion rates to reflect this.

Step 9. Integrate UOM Consistency in Supplier Relations

When Whitford orders 50 rolls of wallpaper, their supplier confirms that each roll covers 30 square meters. This ensures clarity on both sides.

Step 10. Use UOM Data for Inventory Analysis

Whitford evaluates sales trends using consistent UOMs. By analyzing sales by the "set" for kitchen utensils, they identified they sold 150 sets last month. This guides their restocking strategy.

We hope that you now have a better understanding of what UOM (Unit of Measure) in inventory is and how to effectively manage it to ensure accurate stock recording. 

If you enjoyed this article, you might also like our article on the service level inventory or our article on inventory models.

Schedule a free automation consult
Learn more

Level up your Google Sheets skills with our free Google Sheets automation guide

Wasting too much time doing things manually in spreadsheets? Want to spend more time doing what you love? Our 100% free, 27-page Google Sheets automation guide is full of new tips and tricks that will save you time and money!