Backflush

Backflushing is an accounting method that applies costs to production but can also be used to manage inventory. It is also known as “postproduction issuing.” When an operation is completed, the appropriate materials and other resources are issued against the production order. The inventory levels in the system of all components on the bill of materials are also reduced. When the inventory reaches a prescribed level, an order is placed.

There are some good and bad reasons for using a backflushing system for ordering. First off, it is simple. There is little to do—when the part is shipped, the system takes care of the ordering.

Unfortunately, backflushing has some significant drawbacks. (Note that some of these are also present on preproduction issuing, which means that materials and costs are applied when the order is released.)

1. It relies on precision. All of the BOMs (Bills of Materials) must be completely accurate, or inventory levels will deviate from what is in the system.
2. Scrap might be missed. If an extra part has to be grabbed, a transaction is required to keep the system current. If it is missed, the system comes up short.
3. Loss and shrinkage are unnoticed. If parts go missing, you find out when you run out of parts.
4. All usage must have a transaction of some sort. Any usage that is not in the system (perhaps for engineering or testing or internal use in a kaizen) will throw off the numbers if it is not recorded.
5. Confirming inventory is confusing. Your system may say that you have 25 items left. That would include items that are in finished goods or are work-in-process. It would also include all the lost materials.

The alternative to a backflush system is kanban. It makes the management of inventory more visual. It is not necessarily simpler to set up—there is still some math required to making sure the kanban quantities are correct. It is, however, much more apparent when something is running short.