Inventory accuracy and how to improve it
Increasing your inventory accuracy rate is vital when it comes to better planning and organization of your work and goods flows as well as your logistics operations. Inventory management is one of the most critical processes of any company because it directly impacts the other activities taking place in the logistics facility.
Effective stock control in the warehouse facilitates product traceability, the identification of cost overruns, and the detection of errors and inefficiencies in the management and handling of goods in operations such as storage, order picking, and dispatch.
What is inventory accuracy?
Inventory record accuracy is an indicator that measures how closely the list of data compiled during a physical stock count matches your business’s inventory record file (IRF). Conducting physical inventory counts in the warehouse consists of comparing the stock on the racks, its quantities, and its characteristics with the data in your organization’s IRF or computer system.
The inventory accuracy rate is calculated by comparing the total amount of stock shown in the warehouse management system (WMS), Excel spreadsheet, or paper with the real stock quantities in your facility. The difference between these two numbers will determine the accuracy rate. This is the inventory accuracy formula:
Inventory accuracy (%) = (inventory record quantity / real (on-hand) stock quantity) x 100
For example, a company has an initial inventory record of 97 items. When it does a physical inventory count, it finds 104 products, meaning that 7 were miscounted. By applying the formula, we get an inventory accuracy rate of 93%.
Inventory accuracy issues
Any logistics problems arising from inefficient inventory records will directly affect stock and, consequently, your business activity. There are two possible scenarios:
- If there are more quantities recorded than there are units in the facility, your company could suffer a stockout. In this case, you wouldn’t be able to fill customer orders, as you wouldn’t have the SKUs requested in the necessary quantities and conditions.
- If the product quantities reflected in your records are lower than those of the stock in your warehouse, this means your business has stock management issues that could lead to overstock. This situation would have negative consequences for your organization, as it could result in increased storage costs, spoiled stock, and/or reduced profit margins.
How to enhance inventory accuracy
The best way to control stock in real time and improve inventory record accuracy is with warehouse management software. The WMS market is booming, as seen in the latest study from consulting firm Grand View Research, which indicates that the warehouse management systems market size is slated to grow by 15.3% annually to 2028, reaching $8.1 billion.
Implementing a WMS equips you with perpetual inventory control. That is, it provides up-to-date information on inventory in real time, giving logistics managers complete visibility of stock status. These inventory control programs sync stock between the different facilities or warehouse zones, offering supervisors accurate information in real time on the status of the inventory in each logistics center or point of sale.
When carrying out inventory management with Excel, for example, operators have to update changes in stock manually, which increases the probability of error. WMSs, on the other hand, automate the entry in the system of all information relating to goods inflows and outflows.
Operators connect to the software by means of RF scanners (which can scan barcodes, QR codes, and RFID tags) to read the product labels, both in the goods receiving and order dispatch phases. A WMS coordinates all operations taking place in your warehouse, ensuring permanent control over stock and improving inventory accuracy.
There are multiple inventory KPIs for increasing accuracy in stock records, including:
- Stock turnover: this metric reflects the number of times your inventory is sold and replaced over a specific period of time (if the data are annual, throughout the year).
Turnover rate = cost of the goods sold / average value of the stock
- Stockouts: this KPI shows the number of times your company has run out of product and was unable to meet customer demand.
Stockout rate = (unfilled orders / total orders) x 100
Error-free inventory: first step towards supply chain efficiency
Increasing your inventory accuracy rate will have a positive effect on all activities carried out in your supply chain, ensuring speedier operations and avoiding interruptions. And an error-free inventory will also help you to make the best use of the resources in your facility.
Achieving maximum efficiency is much easier with warehouse management software. With a WMS such as Easy WMS, you’ll benefit from real-time stock management to better organize picking and replenishment and cope well with changes in demand. With this digital solution, your business will always have enough stock on hand to serve your customers — even when there’s a spike in sales.
Our company has provided more than 1,000 logistics facilities in 36 countries with real-time inventory. If you’re interested in getting the most out of your logistics operations, don’t hesitate to contact us. One of our expert consultants will advise you on the best solution for increasing your inventory accuracy.