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How much does poor inventory accuracy cost? According to the latest research, 53% of all non-grocery markdowns are a result from bad inventory decisions. 50% of US retail decision-makers cite inventory misjudgments as their primary barrier to full-price sales.<\/p>\n
So, poor inventory accuracy cuts into your bottomline. But how can improving your inventory accuracy help your business?<\/p>\n
By making a strategic investment in inventory management software, processes, best practices, and warehouse technology<\/a>, your business can enjoy these benefits.<\/p>\n <\/p>\n Contents<\/p>\n How close do \u00a0your inventory records and your actual physical inventory match up? That\u2019s your inventory accuracy. The constant movement of goods makes inventory discrepancies nearly unavoidable. While every business owner would like their inventory accuracy to hit 100%, this is challenging. You can assess your inventory accuracy and identify the source of discrepancies<\/a>.<\/p>\n Want to calculate your inventory accuracy? Here\u2019s the basic formula to calculate inventory accuracy by units:<\/p>\n [1 \u2013 (the sum of the absolute variance in units or dollars\/the sum of the total inventory in units or dollars)] * 100%<\/p>\n For example, if you physically counted 150 product units, and your records say you have 160, you would calculate the accuracy like this:<\/p>\n Inventory Accuracy Formula<\/strong><\/p>\n [1- (10\/160)] * 100 = 93.75%<\/p>\n First, your company has to know where it stands with its daily operations. What is your current inventory accuracy, and how do you assess it?<\/p>\n Conduct an inventory reconciliation exercise<\/a>. Shut down your shop for a few days to count stock. Some retailers conduct counts over several days by paying employees overtime to work off-hours. Ensure multiple employees count the stock to avoid human error or dishonesty.<\/p>\n Compare your count to your records. If the numbers don\u2019t match, the first step is to check your sales records and sales receipts. Oftentimes, this addresses any discrepancy: You simply sold the missing stock.<\/p>\n If you can\u2019t find any sales receipts that account for the missing inventory, you likely have one of two problems: employer theft or supplier fraud.<\/p>\n This discrepancy is called shrinkage and you can calculate this using the following shrinkage formula:<\/p>\n Shrinkage Formula<\/strong><\/p>\n [(Recorded Inventory Value \u2013 Actual Inventory Value) \/ Sales] * 100<\/p>\n According to the National Retail Federation, the average inventory shrinkage in 2018 was 1.33%<\/a>. The majority of respondents reporting shrinkage of 1 percent or higher.<\/p>\n Once you have the correct figures, conduct an investigation to find the cause of your shrinkage. Whether or not you find the culprit, you\u2019ll need to update your inventory records. In Excel, you\u2019ll need to manually update each affected stock item. With an warehouse inventory management software<\/a>, there should be user-friendly tools to facilitate this update.<\/p>\n One way to limit business disruption is to conduct cycle counts, which we will discuss later in this article. For now, it\u2019s important to benchmark your existing inventory<\/a>, so you have a starting point.<\/p>\n Once you have your inventory accuracy, set a target. For example, We will improve our inventory accuracy by 5% by the end of Q4. <\/i>One report puts the average inventory accuracy rate in the United States at 65%<\/a>.<\/p>\n Once you\u2019ve done one large inventory count, it pays to conduct periodic cycle counts. These are like inventory spot checks. Rather than counting all of your inventory, you check specific items and use that cycle count accuracy as an indicator of your overall inventory accuracy.<\/p>\n Incorporate the following best practices for your cycle count accuracy:<\/p>\n A great inventory control process limits instances of theft, improves record-keeping, and empowers businesses to identify and prove supplier fraud quickly. Review your existing inventory control processes<\/a> as part of your effort to improve inventory accuracy. This will help you:<\/p>\n Essentially, you want employees to take specific steps every time<\/i> they move inventory since these are the instances in which inventory goes missing.<\/p>\n Typically, the inventory control process includes the following steps<\/a>:<\/p>\n At minimum, your inventory control standard operating procedures should account for the following activities<\/a> at each stage.<\/p>\n\n
What is Inventory Accuracy?<\/h2>\n
Take Stock of Your Current Inventory Accuracy Situation<\/h2>\n
Conduct an Inventory Reconciliation Exercise<\/h3>\n
Set an Improvement Goal<\/h3>\n
Schedule Regular Cycle Counts<\/h3>\n
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Assess Your Standard Operating Procedure for Inventory Control<\/h2>\n
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