Manufacturers & Distributors ARTICLE -
Make Corrections If Your Inventory Counts Are Inaccurate
Target Audience: Manufacturing and Distributing Companies, M&D Industry
Using sophisticated inventory management software is supposed to solve the problem of inaccurate counts, but that’s not always the case. Delays in order fulfillment and angry customers are inevitable if your warehouse is plagued by erroneous inventory counts.
If your inventory data doesn’t match what you physically have in your warehouse, it’s time to take corrective action.
Unfortunately, there’s rarely a quick fix to inaccurate inventory counts. Most likely you’ll need to employ a multipronged solution. First, turn your attention to defining and mapping your work processes. Work with your staff to gain a comprehensive understanding of all steps that affect inventory.
Also chart the actual workflow and document how the processes should work down to the individual task level for each position involved in the process — from purchasing, receiving and stocking to order processing, fulfillment and shipping. This includes completing and processing paperwork, entering data through automated scanning techniques or manually at workstations, and performing any required monitoring checks for inventory.
Next, ensure your employees are properly trained. Set up training sessions for all of your staff to review inventory processes and individual responsibilities. This will help them gain a solid understanding of workflow and how one process affects another.
Consider customizing your training so new employees receive more extensive training while more experienced employees receive periodic refresher courses as processes change. Test your employees on their knowledge of and ability to perform expected tasks, and provide constructive guidance for correcting errors.
The next step is to set realistic goals for minimum inventory accuracy. On a regular basis, such as monthly, identify and report inventory inaccuracies — for example, improper counting, data entry errors, or goods lost to theft, damage or disorganization. Translate what these inaccuracies mean in terms of lost profit.
Finally, continuous improvement is a must. Regularly review your operations with your staff to pinpoint broken process areas and identify solutions for reducing errors. This will allow you to incorporate enhancements or new processes as business needs change.
Try to batch together several process improvements at one time to avoid confusing employees with multiple process iterations. Then roll out the changes through formal training sessions to ensure everyone is on the same page.
Implement cycle counting
To help you reach your inventory accuracy goal, be sure to include cycle counting. Cycle counting involves taking a physical count of part of your inventory in the warehouse each day.
These physical counts are then compared against the levels shown on your inventory management system. By pinpointing inventory discrepancies, cycle counting helps you identify the source of accuracy problems, so you can implement the right solutions.
To this end, there are two types of cycle counting that distributors need to employ in combination:
- Control group cycle counting. This type of counting involves selecting a control group made up of a cross-section sample of inventory, including parts and materials, and then counting the control group and comparing it against your inventory management system data. Control groups are rotated according to an established set schedule to ensure that all inventory in the warehouse is counted at least annually. Because control group cycle counting should be performed at least weekly, it can help you timely identify the source of errors.
- Random cycle counting. After you’ve implemented control group cycle counting, identified any sources of inventory accuracy problems and put the necessary solutions in place, begin implementing random cycle counting. With this type of counting, take a random mathematical sampling of your inventory to assess conformance against inventory accuracy expectations. An inference of the accuracy is then made relative to the entire inventory.
Cycle counting shouldn’t be a one-time event. Conducted frequently, it will ensure continuing improvement in the accuracy of inventory.
Does it add up?
If inaccurate inventory counts are a problem at your company, you need to take corrective steps as soon as possible. Not taking proactive measures may result in a loss of customers and reduced profits. If you need help remedying inventory inaccuracy, contact your business advisor. He or she can help you ensure your numbers add up.
Find out how our M&D accountants can add value to your business. Email us or call us at 1 (888) 875-9770.
M&D Newsletters & Articles
Audit Assurance and Accounting
Tax and Business Updates