Do you wish that you could have a 360-view of your inventory while having an extremely high inventory accuracy? Can you currently point out the exact position of said goods in your inventory? If not, you need inventory management software that will help you increase the stock accuracy in your supply chain. With the inventory management software market projected to reach a staggering USD 7,516.8 million by 2034, it's clear that businesses are recognizing the critical role of precise inventory data.
In this article by Omniful we'll learn about common causes of inventory inaccuracies & key strategies to enhance inventory accuracy.
What is Inventory Accuracy?
Inventory Accuracy or Stock accuracy refers to any discrepancies between the actual quantity or type of physical inventory and what is actually recorded or what it is supposed to be.
Common Causes of Inventory Inaccuracies
Inventory inaccuracies, or discrepancies between physical stock and recorded inventory levels, can significantly impact a business's bottom line. Here are some of the common causes of errors in inventory accuracy:
Human Error
As the popular saying goes, “To err is human,” and your inventory is no different. Here are some of the human errors that cause issues in stock accuracy:
Inaccuracies in Data Entry: Incorrect input of data in inventory management systems, including but not limited to typing errors, miscalculations, and product code oversight, can lead to inadequacies in inventory accuracy.
Physical Count Errors: Data entry is the end point; the issue can lie in the beginning, i.e., counting errors. When the inventory is enormous or complex, a physical count of inventory can cause discrepancies in stock accuracy.
Misplaced Items: Often, inventory gets lost in the warehouse, especially if the items are small in size (as they are easy to lose), which can cause significant inventory inaccuracies.
System and Technology Issues
Even with advanced inventory management software, inaccuracies can occur if:
Software Glitch/update Issue: Even the most advanced inventory management software is kept outdated and updated, which will cause issues in the form of bugs and obsolete features, which might not support the latest and greatest technological advancements that cause significant inventory inaccuracies.
Integration Issue: Inventory Accuracy or stock accuracy can take a hit if the Inventory management software is not properly configured with other systems, such as point-of-sale (POS) or enterprise resource planning (ERP) systems.
Supply Chain Issues
Stock accuracy can have issues due to external factors as well, like supply chain:
Supplier Errors: Your vendor can send you more or less quantity you ordered or inaccurate invoices that cause stock inaccuracies.
Shipping and Receiving Errors: Errors during the shipping process, such as mislabeled or damaged during transit, can impact inventory accuracy.
Poor Inventory Management Practices
Lack of Regular Cycle Counts: Infrequent or periodic cycle counts can allow inaccuracies to accumulate over time.
Insufficient Training: Inadequate training for employees can result in mistakes and errors in inventory processes.
Key Strategies to Enhance Inventory Accuracy
Real-Time Inventory Tracking
Real-time inventory tracking provides your business with up-to-the-second visibility/update of your inventory. Real-time inventory tracking enables you to have a greater understanding of your stock levels, and your business can:
Prevent Stockouts: Real-time data enables accurate demand forecasting and timely replenishment, reducing the risk of stockouts and lost sales, especially during the peak season of your business.
Optimize Inventory Levels: By monitoring inventory levels in real-time, businesses can avoid overstocking or understocking, optimizing inventory investment.
Improve Order Fulfillment: Accurate and timely stock information allows your business to pick and pack orders efficiently, reducing fulfillment time and improving customer satisfaction.
Identify Theft and Shrinkage: Real-time tracking can help detect discrepancies and improve inventory accuracy between actual physical inventory and the system records you’ve updated, alerting businesses to potential theft or shrinkage issues or any other loopholes in your business.
The implementation of real-time tracking can help maintain stock accuracy rates above 95%, which is considered optimal for most businesses. The inventory accuracy rate can be calculated using the formula: Counted Units/Units on record x 100
Regular Audits and Cycle Counting
Regular audits and cycle counting are incredibly essential for maintaining accurate inventory records. These processes involve physically counting inventory items and comparing the results to system records. By conducting audits and cycle counts, businesses can:
Identify and Correct Inaccuracies: Regular audits help uncover and rectify human errors in inventory records, ensuring inventory accuracy.
Improve Inventory Management Practices: Analyzing inventory audit results can identify areas for improvement in inventory management processes, such as optimizing warehouse locations or spending time on improving the process of employee training.
Reduce Inventory Shrinkage: By regularly verifying physical inventory, businesses can detect and address issues like theft, damage, or spoilage; this can be done by a combination of real-time inventory tracking along with regular audits and cycle counting.
Enhance Financial Reporting: Accurate inventory records are crucial for accurate financial reporting, ensuring that the value of inventory is correctly reflected in the balance sheet, which increases confidence among the shareholders and gives a more clear picture of your business’s financial position.
Key Audit Components for increasing inventory accuracy are:
- Physical inventory reconciliation
- Comparison of counted units against recorded data
- Weekly verification checks
- Random spot checks for accuracy validation
Automation in Inventory Management
Automated inventory management systems significantly reduce human error and improve overall efficiency. Key automation technologies include:
Barcode Scanning: A supply chain can be complex, especially when you have high stock movement. With barcode scanning in place, data on the stocks is captured quickly and extremely accurately. Barcode scanning enables you to be up to date with inventory counts from receiving/manufacturing of the good till delivery.
RFID Technology: RFID Technology: Is your warehouse as big as a football stadium? Do you want to speed up the packing and processing of the orders you receive? With the help of Radio Frequency Identification (RFID) tags, you can pinpoint the exact shelf on which your goods are kept. This minimizes the chance of a stock being misplaced or lost, while speeding up the supply chain process.
Automatic Reordering: There may be times when you and your team might be neck deep into operation during peak times, and your team, due to uncontrollable reasons, forgets to place an order for your highest-selling item; it's frustrating, right? An automatic reordering system entirely eliminates this issue; with it, an order is automatically placed with your vendor when the stock is below certain predetermined levels.
Inventory Management Software: Advanced inventory management software, such as Omniful’s Inventory management software, can help you streamline inventory processes, automate tasks, and provide valuable insights to optimize inventory levels and reduce operational costs.
By combining the aforementioned strategies and utilizing such advanced technologies, your business can achieve and maintain high levels of inventory accuracy. Accurate inventory data will help your organization to make informed decisions, optimize operations, and improve overall business performance!
Key Inventory Accuracy Metrics and KPIs
To understand and improve inventory accuracy, you should be able to track a variety of key performance indicators (KPIs). Here are some crucial metrics:
Shrinkage Rate: Shrinkage rate helps you measure the loss of inventory due to one of the following reasons - theft, damage, or other factors. A lower shrinkage rate indicates better inventory control.
Inventory Turnover Ratio: This ratio measures how efficiently inventory is sold and replaced. A higher turnover ratio suggests effective inventory management.
Order Fill Rate: Order fill rate measures the percentage of orders fulfilled completely and on time. A higher rate indicates better inventory availability and order fulfillment accuracy.
Write-Off Rate: The write-off rate measures the percentage of inventory that needs to be discarded due to damage, expiration, or obsolescence. A lower rate indicates better inventory management and reduced losses.
Perfect Order Fulfillment Rate: This KPI measures the percentage of orders that are delivered on time, complete, and undamaged. It highlights the overall efficiency of the order fulfillment process.
Final Thoughts
Any successful business needs constant improvement in inventory accuracy better than anything else. Your business should take all the necessary steps to maintain your desired stock accuracy. This includes having the best inventory management software in place that provides you with all the tools and means required to implement the key strategies we mentioned earlier so that you can keep an accurate record of all purchases, sales, and stock movements. By having a real-time view of your stock, you’ll be able to maximize ROI and reduce a great deal of losses due to stock.
All of this can be possible by simply contacting Omniful; we not only improve your inventory accuracy but also help you integrate with other software, such as the Order management system and Warehouse management system, amongst others, with our simple Plug-Play integration. We’re your One-Stop Shop for stock solutions; contact us now!
FAQs
What are the common challenges in maintaining inventory accuracy?
Common challenges in maintaining inventory accuracy include human error, outdated or inadequate tracking systems, misplaced or lost items, lack of regular stock audits, changes in consumer demand, inefficient warehouse layout, and theft or shrinkage.
How can real-time tracking improve inventory accuracy?
Real-time tracking with Omniful's inventory management software provides accurate, up-to-date inventory data, preventing stockouts, overstocking and streamlining operations for better efficiency and customer satisfaction.
What is the ideal inventory accuracy percentage for businesses?
In an ideal world, an inventory accuracy of 100% would be the preferred percentage, but in the real world, anything around 95% of inventory accuracy can be considered golden.
