What You Should Know about Inventory Accuracy

Maintaining inventory accuracy is a major challenge for many businesses, especially those dealing with fast-moving products like retailers. It’s a constant battle to make sure the stock in your warehouse matches the numbers in your system.

If you’re not tracking things properly, wah piang eh, stockouts can happen fast! Imagine this: you’ve got no idea there’s stock sitting in your warehouse because the records don’t match up. Not only are you wasting space, but you’re also losing money by not utilizing that inventory.

In fact, studies show that retailers typically only have accurate inventory information for about 35% of their items. That means the majority of the time, there’s a disconnect between what’s on the shelves and what the system says is available.

This article will discuss the importance of maintaining high inventory accuracy and provide tips and formulas for calculating it.

What is Inventory Accuracy?

Inventory accuracy is the alignment between a company’s physical stock levels and its recorded inventory data. It measures the difference between your warehouse records and your real-life inventory.

For instance, if your system records 200 units of a product, but a physical count reveals only 150 units in your warehouse, your inventory accuracy would be 75%. This is calculated by dividing the actual stock (150) by the recorded stock (200) and multiplying by 100 to get the percentage.

Inaccuracies can cause significant disruptions throughout your supply chain. For example, your records may show ample stock, but in reality, you could be down to your last unit, or worse, selling a product that doesn’t exist in your warehouse.

Many companies grapple with maintaining accurate inventory, but there are effective strategies to improve it. These include routine stock counts, adopting an inventory management system, and integrating barcodes or RFID technology to monitor inventory items, SKUs, and storage bins.

Importance of Inventory Accuracy

Inventory accuracy plays a crucial role in the overall success of your business. Without it, managing stock becomes guesswork, and the team could end up facing operational challenges. Understanding its significance will help you avoid costly mistakes

Below are the benefits of inventory accuracy:

1. Reduces overstocking and stockouts: Accurate inventory provides greater insight into stock levels, enabling more informed purchase decisions. Ensuring you have the proper amount of stock to satisfy consumer demand without excess building helps you avoid both stock shortages and overstock situations.
2. Lowers operating expenses: Precise inventory records make it easier to spot dead or slowly moving material, which has significant carrying costs. SKUs that aren’t performing well can be discontinued and stock levels optimized to drastically save expenses and free up valuable warehouse space.
3. Enhances inventory management procedures: Accurate counts give you more control over your stock, enabling you to see where it is, how much is needed, and when to place a new order. This keeps your supply chain free from expensive mistakes by guaranteeing a constant flow of merchandise from replenishment to fulfillment.
4. Makes inventory forecasting easier: Reliable inventory forecasting is made possible by accurate inventory data. By employing accurate data, you may steer clear of typical forecasting errors and generate well-informed predictions regarding future demand, replenishment requirements, and purchasing plans.
5. Reduces inventory errors like shrinkage and miscounts: By maintaining precise stock counts, you can more quickly spot inconsistencies and inventory issues like shrinkage. This makes it more likely that your inventory records accurately represent the condition of your products.

What is a Good Inventory Accuracy Rate?

With advancements in system tools and the growing use of RF-based transactions, companies now expect high levels of inventory accuracy.

Although 100% accuracy may seem unattainable, this metrics study shows that median inventory accuracy levels, whether by count or value, are consistently over 99.6%. Top-performing companies, however, achieve accuracy levels as high as 99.98%.

This trend is observed across various industries, from manufacturing to retail, indicating that many companies have effective inventory control processes in place. Even most of these companies try to make it their inventory KPIs to maintain as high a number as possible.

However, traditional inventory calculations treat it as a static measure without factoring in the number of times an item turns over. For businesses with high inventory turnover, a snapshot taken during a physical or cycle count may not fully reflect the volume of inventory managed over time.

As a result, more companies, particularly those with frequent inventory turns, are shifting to a revised inventory accuracy calculation that considers the total material movement instead of just the on-hand balance.

Challenges in Achieving Consistent Inventory Accuracy

Stock discrepancies can lead to a variety of issues within your supply chain. Your website might display incorrect product availability, causing customers to place orders for items that aren’t actually in stock.

Before addressing solutions, it’s important to understand the root causes of these inaccuracies.

1. Undocumented inventory loss

Inventory loss, also known as shrinkage, occurs when the actual stock on hand is less than the recorded amount. This can result from factors like theft, accounting mistakes, or damage during shipment.

For example, if an item is damaged and can no longer be sold, it should be excluded from your physical inventory and written off in your system. Failing to document such losses will cause discrepancies between your physical counts and recorded stock levels.

The most effective way to prevent this type of discrepancy is to log losses immediately, ensuring your stock is accurate, and solutions can be sought to prevent future losses.

2. Errors in order fulfillment from suppliers

Mistakes in supplier order fulfillment can also create inventory inaccuracies. For instance, if you record an order before it has been received, any delays from your supplier can result in product unavailability for your customers, leading to costly errors.

To minimize these issues, it’s important to partner with reliable suppliers who take responsibility for any errors. Additionally, you can request confirmation emails to verify the accuracy of your orders before they are shipped.

3. Disorganized warehouses

Disorganization in the warehouse is a common problem that often leads to misplaced items, especially when managing a large volume of stock without an inventory management system. This results in inaccurate counts and lost products that can sit unused and become obsolete.

To prevent this, it’s essential to maintain an organized warehouse by implementing standardized labeling, uniform bins, and pallets. Establish clear guidelines for your pickers and counting teams to ensure items are consistently tracked and properly located.

4. Mismanaged returns

Inaccurate inventory can also result from poorly handled returns. Incorrectly coded returned goods can distort inventory records, leading to “ghost inventory,” where the system indicates an item is available when, in reality, it isn’t.

To address this, streamline your returns process and automate tasks where possible to reduce human error. Additionally, train staff to handle returns correctly, ensuring items are appropriately coded before they are restocked.

How to Calculate Inventory Accuracy

There are two commonly used methods to calculate inventory accuracy:

1. Physical Inventory Counting

Physical inventory counting, also known as inventory reconciliation, involves comparing the actual physical stock on hand with the recorded inventory data. This process helps identify discrepancies and understand their causes.

To perform this method, you conduct a physical count of all available inventory and compare it with the recorded numbers. The inventory accuracy rate can be calculated using the formula:

Inventory Accuracy Rate = (Counted Units / Units on Record) x 100

If the counts match, your inventory is accurate. If they don’t, there is a discrepancy that needs attention. To maintain accuracy, it’s recommended to perform weekly checks using this method, allowing you to consistently monitor and adjust your stock levels.

2. Inventory Valuation

This method is used in inventory accounting, where you calculate inventory accuracy by comparing the total value of the physical inventory on hand with the value recorded in your tracking system. Unlike physical counting, this approach doesn’t account for individual items.

The formula is:

Inventory Accuracy (Valuation Method) = (Value of Counted Inventory / Value of Inventory on Record) x 100

This method calculates the accuracy rate by comparing the total value of the physical inventory to the recorded value in your system. While it’s a quick way to assess inventory accuracy in terms of value, it doesn’t provide the detailed item-level insight that physical counting offers.

Tips to Improve Inventory Accuracy

Improving inventory accuracy starts with adopting best practices that enhance your stock management. By focusing on these inventory accuracy best practices, you can ensure more reliable data and smoother processes.

Here are some key tips to help you maintain accurate inventory levels:

1. Regularly check your inventory

Maintaining inventory accuracy should be a priority. Conduct frequent inventory checks to ensure that your physical stock aligns with your recorded data. By performing these checks consistently, you reduce the risk of inaccuracies and can quickly address any discrepancies before they escalate.

To make regular inventory checks easier, you can utilize various tools, such as barcode scanning and RFID, which can be compiled into a central platform like inventory management software. Click on the free demo banner below to explore more!

2. Implement a cycle counting system

Cycle counting involves periodically counting a subset of your inventory in specific locations on a scheduled basis. This method allows you to avoid the need for annual physical counts, focusing instead on regular checks of select items to ensure your inventory remains accurate throughout the year.

3. Enhance inventory security

Proper security measures are essential for safeguarding your inventory within the storage facility. By securing your stock, you can significantly reduce theft, ensuring that your inventory counts stay accurate since shrinkage will be minimized.

4. Opt for professional storage solutions

Instead of self-storing inventory in personal spaces like your apartment or garage, consider utilizing a professional warehouse. Though it might involve higher upfront costs, professional storage often improves inventory accuracy and can save money in the long term.

However, pairing this with efficient warehouse management is key to keeping inventory tracking real-time.

5. Partner with a fulfillment company

Instead of handling inventory storage yourself, you can collaborate with an e-commerce fulfillment partner. These companies specialize in storing, managing, and shipping inventory for you.

They take care of picking, packing, and warehousing, ensuring smooth inventory management without the hassle of doing it on your own.

6. Upgrade your inventory management system

A robust inventory management system is vital for sustainable business growth. If your current system lacks essential features, it could be affecting your inventory accuracy. Investing in a more advanced or integrated system, such as an ERP, can enhance your control over inventory and improve accuracy.

If you want to know which inventory management software is the best for your needs, try taking a peek at this article, which discusses the best inventory management software in Singapore.

7. Conduct frequent and random inventory checks

To improve accuracy and avoid issues, schedule frequent cycle counts. Randomized inventory checks help prevent unnoticed errors from accumulating, ensuring your records stay consistent and reducing the risk of inventory discrepancies.

Enhance Your Inventory Accuracy Seamlessly with HashMicro Inventory Software

Inventory accuracy is more than just ensuring that your stock figures match; it also means complete control over your operations.

When your inventory matches what is recorded, you avoid costly errors, decrease stock inconsistencies, and ensure an uninterrupted workflow throughout your supply chain.

That’s where HashMicro Inventory Management Software can help. It goes beyond basic stock monitoring by automating stock movements, synchronizing real-time data, and tracking each item from arrival to delivery.

This technology interacts effortlessly with your existing procedures, increasing inventory accuracy and providing peace of mind that your stock is always where it should be.

HashMicro has these features to help you optimize your inventory:

• RFID Warehouse Rack Stock-In-Out Automation: This system automates the tracking of goods moving into and out of warehouse racks, ensuring real-time updates and reducing human errors.
• Cycle Counting: Implementing a cycle counting method ensures precise inventory levels without the need for a thorough physical count.
• Stock Forecasting: This method optimizes stock levels by forecasting future demand based on historical data and trends, preventing overstocking and understocking.
• OCR for Receiving: Converting text from physical papers into digital data during the receiving process ensures that inventory records correspond to actual stock.
• Stock Reservations and Reporting: This function monitors stock allocations before they are physically transported, assuring correct records of available stock and preventing double booking or miscounts.
• Fast Moving, Slow Moving, and Non-Moving Stock Analysis: Identifying things that move at different rates can help increase accuracy by concentrating efforts on closely monitoring fast-moving items while optimizing stock levels for slow or non-moving items.

Conclusion

Inventory accuracy is essential for keeping your business functioning effectively. It guarantees that your physical inventory matches your records, which enables companies to avoid problems such as stockouts, overstocking, and costly errors.

HashMicro Inventory Management Software simplifies the procedure. It does more than just track your inventory; it provides real-time data, automates stock moves, and guarantees that everything is properly accounted for.

Whether you employ RFID tracking or cycle counting, you’ll always know what’s in your warehouse and where it’s going.With its simple connection and advanced functionality, maintaining your inventory becomes effortless.

Why not give HashMicro a try and book your free demo now? Confirm power lah!