Inventory Accuracy | 3 mins read

6 Top Tips to Increase Inventory Accuracy

6 top tips to increase inventory accuracy
Jin Hyun

By Jin Hyun

The accuracy of inventory data ultimately impacts a business's supply chain, sales, customer retention, and profit, making this vital for any product-based business.

Inventory accuracy refers to how a business's inventory is being recorded, monitored, and updated to determine whether the business' actual stock matches what has been recorded in the database.
This can reveal any disparities between the electronic records versus what is physically there. The two main inventory-related records that should be reconciled for inventory accuracy are-

  1. The electronic (or paper) records for deliveries, sales, and shipments.
  2. The amount that has been counted through manual checks of all physical inventory on hand.
If there are inaccuracies in inventory counting and tracking, businesses can experience a world of issues, ranging from stockouts to spoilages. According to research, 53% of markdowns of non-grocery products are a result of bad inventory management decisions.

On the other hand, improving inventory accuracy can lead to enhanced sales opportunities by ensuring there is always an appropriate level of stock on hand to meet consumer demand while also freeing up capital spent on unnecessary or excess inventory.

How to Calculate Inventory Accuracy

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The formula for calculating inventory accuracy is simple-

1 - (sum of the variance in dollars/units) / (sum of the total inventory in dollars/units) X 100
1 - (variance / total inventory) X 100
For example-

140 units have been physically counted, yet the records show 170 units of inventory are there. The calculation would be-

1 - (30 / 170) X100 = 82.35%
This would be slightly lower than what would be considered as an accurate inventory. Businesses should aim for above 85% (of course, ideally 100%).

To calculate the percentage of inventory accuracy, companies will need to provide accurate information regarding-

  • On-hand inventory quantity
  • Inventory location
  • Unit of measure (multi-packaged items vs. Single)
  • Product number or identifier, where relevant

Increasing Inventory Accuracy - 6 Key Tips

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Every product-based business, no matter the industry, should focus on maximizing inventory accuracy as part of their inventory control. For a company to have smooth operations from receiving goods from suppliers to delivering orders to customers, inventory management processes should be optimized.

Consider the following 6 techniques businesses can use to improve and maintain inventory accuracy.

1. Warehouse Organization
Having a thoroughly organized space to store inventory is crucial for a smooth flow of receiving goods and fulfilling orders. Inventory should be categorized so that the inbound inventory is stored efficiently, and the stock is then easy to find and access for sales orders.

A company can lose money through labor costs (wasting time and money with ineffective storage methods), as well as through customer retention if orders are not fulfilled on time due to lost inventory or slow-moving systems of storage and delivery.

Tips for organization-

  • Display maps of the warehouse in common areas for staff to see
  • Provide clear signage with item descriptions
  • Label areas, categories, and even individual units if needed.
  • Label empty shelves where the stock would normally be
2. Clear Inventory labeling
Categorizing items together in a specific system with clear descriptions for each item or category will offer the benefits of a well-organized inventory storage space.

This can also prevent delays in order fulfillment, as well as lost inventory by increasing accountability and efficiency in storage spaces.
Tips for labeling-

  • Use simple, easy-to-read language/numbers (consider color-coding)
  • Include barcodes if automated systems are in place
  • Display key information such as item description, unit count of stock that may be boxed together, expiration dates, etc.
3. Define Internal Policies
Having step-by-step processes for all employees to follow is what will ensure that all of these inventory accuracy measures are effectively enforced. Documented procedures are key, and they should include the following elements-

  • Standard operating procedures for receiving and storing incoming inventory
  • Provide training on how to handle, transport, and store inventory
  • Enforce consistent labeling guidelines
  • Establish procedures for damaged/expired inventory
4. Cycle Counting
Unlike traditional inventory counting (such as a stock-take where all operations cease in order to count everything), cycle counting involves conducting regular counts of small subsets of your total inventory over a longer time period.

Inventory cycle counting gives a business an ongoing assessment of how inventory is being recorded and whether procedures are being met consistently.
Tips for cycle counting-

  • Prioritize items with a high value or more movement volume
  • Eventually move through different inventory categories to make sure accuracy is being maintained with all stock types
5. Limit Access to Inventory
This will safeguard your stock from reporting errors by only giving select trained employees access to the document and the ability to handle or assess inventory metrics. This will make it much easier to pinpoint the source of inventory inaccuracies, while also focusing on continuous improvement of employee compliance.

Tips for inventory accessibility-

  • Designate a small group of employees who have access to data and who partake in inventory counts
  • Periodically review who has access to inventory records, cross-checked with inventory accuracy, to see if it correlates with the data. This can reveal which staff members are not conducting policies properly.
6. Leverage Inventory Management Technology
Finally, enhancing inventory accuracy through processes of labeling, documenting, reporting, and analyzing data requires an effective and accurate system. Simple pen and paper and/or spreadsheet methods of inventory data management are outdated and often yield poor results.

With the rise of sophisticated inventory management software, companies get the opportunity to improve their accuracy by removing the possibility of human error. Businesses can leverage this tool for a more time-efficient, and accurate tracking process of their stock.