inventory-accuracy

Inventory accuracy is one of the most important measures in any retail business, it ensures proper planning, product availability, and minimal wastage. Sadly most of the retailers struggle with the accuracy of inventory, in fact, the average accuracy of inventory Is only 63%.

Definition

Inventory accuracy as a metric can be measured as the difference between the inventory reported to be in hand and the inventory available at the different storage locations. That is “stock in hand” does not match the recorded inventory.

Roadblocks to inventory accuracy

There are a lot of reasons that can be the root cause of inventory inaccuracy, but here are some of the most common ones:

  • Product definition:
    It’s hard to imagine for an outsider but the product definition are not as stable as we imagine. The definitions sometimes have discrepancies within different departments. The fluidity in product definitions results in the counts being off.
  • Manual processes:
    A lot of inventory tracking and counting is done by hand, even if there are RFIDs and scanning devices available, yet they are not universally available and they also rely on human intervention to be accurate. For example, if a routine cycle of inventory counting is not in place, then no amount of scanners will help. This is the same reason the inventory is typically more accurate at warehouses, as compared to stores.
  • Lag in reporting:
    Sometimes the inventory is not accurate per se, but there is a lag in the reporting. Each store, warehouse, and any other catchment area needs to report the inventory, in absence of a truly connected inventory management system, the information from each unit lags a bit.
  • Theft and pilferage:
    Theft and pilferage is a big problem in retail. According to the National Retail Federation, shrinkage costs US retailers around $50bn each year. The internal pilferage especially leads to inaccurate inventory reporting.
  • Disjoint systems:
    A more common problem is the disjoint warehouse management system, inventory management system, POS, and other systems that track inventory. Add to this the manual counting and reporting and you can never be sure of the inventory calculations are accurate.

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