Inventory accuracy is one of the essential features of any modern warehouse or supply chain management. In cases when recorded and actual stock levels do not match, companies face order delays, extra purchases, shortages, and increased costs.
Enhancing inventory accuracy should be a continuous process that standardizes procedures, improves data capture and storage, and increases transparency in inventory movements.
- Determine the sources of inventory inaccuracies
Prior to introducing changes, it is critical to identify the main sources of discrepancies. Some of the common reasons why inventory levels fail to match documented records are:
· receiving goods and materials without verification;
· recording movements after several days of stocking;
· transporting goods without updating records;
· mislabeling items and SKU mixing;
· skipping the entry of returned goods, defective items, or write-offs;
· using different spreadsheets for different departments.
By classifying the sources of discrepancies, the operations manager can develop a list of actions to prioritize and eliminate the sources.
- Introduce cycle counting and prioritize high-value items
Companies traditionally use an annual physical count to verify the accuracy of their inventory records. An alternative is cycle counting that implies checking a sample of items on a regular basis. Typically, there is a list of inventory items that are subject to periodic counts. It is suggested to prioritize items based on their values, turnover rate, business importance, and frequency of discrepancies.
For example, active inventory components in a supply chain (e.g., component parts) should be monitored more closely than slow-moving finished goods. If a discrepancy is detected, it is critical to review all transactions to find the stage where inventory records were incorrectly updated. It is also essential to analyze the frequency of discrepancies and inventory accuracy metrics.
- Choose the most relevant identification technology
Both barcode scanners and RFID-readers can be used to collect inventory data. However, using these technologies requires an adequate understanding of the benefits and limitations that come with their use.
Unlike barcode scanners, RFID-readers do not require a direct line of sight. It means that items do not have to be removed from a pallet or storage rack for a worker to read an RFID tag. Depending on the technology, RFID tags can be read in various environments with a reader detecting several items at once.
It is hard to say which technology is better for improving inventory accuracy since it depends on the specific task, item location, materials, readers, and hardware used. In addition, both RFID and barcode systems require the correct installation and elimination of duplicates. The choice of a technology also depends on how scanning information is transferred to the inventory management system.
- Ensure the consistency of inventory records in different systems
Various systems such as ERP, WMS, order management systems, and accounting software store different sets of inventory data. If the information in these systems is not integrated in real-time, employees may ship products that are no longer in stock.
Therefore, it is essential to design the rules for synchronization in terms of:
· inventory data fields that will be updated in a particular WMS or ERP system;
· receipt, delivery, picking, and transfer processes;
· update frequency;
· processing of failed transactions and duplicates;
· inventory records exception resolution.
While some companies apply event-based synchronization, the choice of synchronization architecture depends on the organization’s infrastructure and volume of transactions.
- Fine-tune forecast and replenishment models
It is important to note that inventory accuracy is not directly related to inventory optimization. While the former concept refers to the precision of item counts, the latter implies the establishment of optimal stock levels.
Essentially, inventory forecasts and replenishment models allow organizations to set appropriate thresholds. To fine-tune these thresholds, it is essential to analyze historical sales data in conjunction with supplier lead time, product volatility, order quantity constraints, and safety stock requirements. These parameters should be reviewed at specified intervals since suppliers’ performance and demand patterns tend to change over time.
The accuracy of inventory records has limited impact on the effectiveness of a replenishment model. In other words, a company with inaccurate inventory records will be unable to respond to supply-demand fluctuations if the replenishment policy relies on inaccurate information.
- Establish a system for measuring inventory performance
Companies should develop a balanced inventory management scorecard that includes a few key performance indicators. First, organizations should assess inventory record accuracy on a periodic basis. Second, the analysis should also cover the percentage of product shortages and inventory turnover. Third, the scorecard should also include order picking accuracy and exception resolution time (inventory discrepancies). By analyzing these trends, companies can identify the most pressing issues.
It is essential to develop consistent formulas so that the same metric is not calculated differently in different facilities or by different team members.
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- Develop a continuous improvement framework
Companies can adopt a continuous improvement framework that typically contains 5 stages:
Baseline assessment (inventory count and transaction audit);
Determination of improvement priorities (critical discrepancy sources);
Optimization of processes (receiving, moves, and picking procedures);
Introduction of scanners, integration, and automation;
Improvement of performance indicators and process optimization.
In this way, the continuous improvement cycle will help organizations separate process-related issues from technology-related ones.
Conclusion
Improving inventory accuracy should be a continuous process enabled by the cooperation of personnel, process, data, and technology. The suggested cycle starts with the implementation of cycle counting to identify sources of discrepancies. These discrepancies can stem from the lack of standardized procedures for receiving, moving, and picking items. These processes should be optimized and supported by scanning and data integration technologies. The continuous improvement cycle can help organizations identify the most pressing issues.
For an in-depth understanding of the technologies used in modern inventory management, you may want to review this inventory management software guide .
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