How to Calculate Inventory Accuracy: Its Impact on your Operation and Numbers

26 Mar How to Calculate Inventory Accuracy: Its Impact on your Operation and Numbers

Inventory management software includes everything you need, including an intuitive user interface, efficient order administration, precise stock management, and real-time inventory insights. Sales of a product will be significantly slowed, and inventory may be hampered as a result. From order fulfillment to inventory stock control, every process will be affected badly. These practices not only boost inventory accuracy but also improve efficiency and customer satisfaction, positioning TechWare competitively in the electronics retail market. TechWare conducts weekly physical counts to spot discrepancies promptly. For instance, a recent audit revealed that they had 3% fewer laptops in stock than their records indicated.

When inventory is not professionally stored or handled at a warehouse, it might result in inventory accuracy issues. If their delivery is delayed for more than two days, the majority of clients will not shop with that business again. It could take weeks for a consumer to receive a box if they order a product that exists in the database but not in the warehouse. Keeping accurate inventory counts will help avoid stockouts like these in the future. To satisfy customers, retail brands need to maintain accurate and effective levels of inventory.

An organized warehouse’s foundation is made up of standardized bins and pallets. Standard dimensions make it easier to transfer products and improve warehouse operations. However, if an employee discovers where part of the inventory went missing, they might assume that also accounts for the rest of the discrepancies. If 20 units of an item went missing because someone forgot to scan them out of the system, the employee might assume that forgotten scans also accounted for the rest of the lost inventory.

Retail Method of Inventory Costing

Someone with previous experience managing inventory can advise on the best way to count your stock, assist with a cycle counting program, and run regular audits to maintain accuracy. That frees up extra time for you to work on the things you’re best at. It is almost impossible to retain a 100% inventory accuracy rate, no matter what calculation method and technology you employ but it shouldn’t be too far from it. Typically, the average inventory accuracy is 99.6%, where the 0.4% is mostly due to human error that is inevitable for large companies. The more transactions you have, the higher the probability of a discrepancy in inventory data, and the occasional mishap isn’t something to worry much about. On the flip side, accurate inventory counts improve your inventory management practices by providing greater inventory control.

• Previously, they encountered 40 discrepancies monthly, which reduced to 30 after collaboration, resulting in significant time and resource savings.
• It’s imperative you have a keen understanding of what is really happening to your inventory over a specific period of time.
• At the industry level, markdowns cost retailers $400 billion in revenue, or 12% of total sales, in 2018.
• Technologies like RFID and barcode scanning can mitigate these issues by minimizing manual errors and offering real-time inventory insights.
• This could happen if the product has expired, no longer in style, or the prime season for sales has passed.

ShipBob’s industry-leading software seamlessly integrates with your ecommerce platform and our warehouse management system to streamline operations and inventory management. Optimizing your inventory management and improving inventory accuracy is crucial, but it can also be difficult and resource-demanding. Fortunately, you can outsource all this to a reliable third-party logistics provider, like ShipBob. If you introduce new sales channels, multichannel inventory management is needed to prevent over-stocking and under-stocking issues across stores.

Warehouse Management Systems (WMS) provide comprehensive tools for inventory management, tracking, and reporting. They automate data capture, improve visibility across the warehouse, and enable real-time inventory updates. Implementing a WMS ensures accurate inventory records and streamlines warehouse operations, improving supply chain KPIs. The inventory management software files electronic records,  making it simpler for you to track your inventory regardless of how complex your inventory requirements are. For example, operations software provides precise information on the location and movement of stocked goods — and even updates this data in real-time.

Inventory Accuracy: FAQs

Improving inventory accuracy often comes down to having ample space to store inventory items. Brands can lose money due to ineffective storage methods that waste time and increase labor costs. This could also impact customer retention, especially if there’s lost inventory and customer orders aren’t fulfilled on time. Organizing a warehouse effectively entails categorizing inventory appropriately for easy access. Inventory accuracy is one of the industry’s biggest challenges today.

Implement cycle counting

Damages, your business is at a loss, and you can even struggle to sell through what you have before it becomes obsolete. Having proper inventory security ensures the safety of your products in the storage facility. By making sure your inventory is secure, you’re able to minimize theft. As a result, your inventory counts will remain accurate since theft is not a consideration. Cycle counting is a way of managing inventory where a portion of inventory is counted in specific locations, on certain days, on a recurring schedule. Implementing a cycle count program allows you to forgo annual physical counts so you can count specific items on a more regular basis and therefore ensure your inventory is accurate.

Inventory Accuracy: Why It’s Important and How To Improve It [+Formula]

However, there are other areas of logistics where accuracy is important. You anticipate that your provider will correctly fulfill any orders you place with them. However, your inventory accuracy is impacted when your purchase order (PO) contains a mistake, or your supplier makes a mistake. Your unit of measurement (UOM) is the figure you use for counting your product. For example, if you sell bottles that come in boxes of 12, you might use a UOM of one box.

OptimoRoute even accounts for real-world constraints like delivery times, vehicle capacity, vehicle capabilities (refrigeration, etc.), driver schedules, and more. If your drivers use the app, you can also track their movements and deliveries in real time. Every time they arrive 4 inventory valuation methods used by ecommerce businesses at an address, the app will automatically ask them if they successfully delivered the package. But inventory accuracy doesn’t matter if you drop the ball on last mile delivery. West Coast Distribution struggled to maximize inventory accuracy with its old mishmash of systems.

Warehousing and supply chain operations also benefit from precise inventory tracking and efficient order processing. In supply chain management, inventory accuracy is the cornerstone of efficient operations. Accurate inventory tracking data allows businesses to make informed decisions regarding procurement, production, and distribution. It ensures that the right products are available in the right quantities, minimizing stockouts and reducing excess inventory. By maintaining optimal inventory accuracy, businesses can streamline their supply chains, reduce costs, and improve overall operational efficiency. Inventory accuracy, while essential, comes with its set of challenges, from manual data entry blunders to inefficient restocking processes.

This will allow you to carefully calculate the inventory needed to fulfill future orders, while also zooming in on customer buying behaviors, trends, and patterns. ‍By leveraging historical data and analytics for precise inventory planning and adjustments, TechWare prevented a $20,000 stockout of gaming consoles during peak demand. Make sure your employees are well-trained in how to enter data accurately and handle inventory properly. Employees who know what they’re doing are less likely to make mistakes, which means better accuracy in managing inventory. Inventory valuation tells you how much money you have wrapped up in unsold inventory.

How to Prepare a Percent of Accuracy for Inventory

By integrating all inventory and asset management solutions into one cloud-based platform, business owners gain access to live asset data from any location. Using a reliable inventory management system (IMS) is critical if you want to scale your business sustainably. Traditional, older inventory management systems only provide the basics, are prone to errors, and don’t have the features you may require to thrive in the modern business landscape. Inventory accuracy is a measure of the difference between your actual inventory and what your records show. Inventory accuracy is crucial to prevent shortages, stock-outs, shrinkage, maintain a positive customer experience, and control inventory quality. Educate your employees on the importance of accurate inventory management and provide training on proper counting techniques and data entry procedures.