Are you tired of discrepancies between your records and actual inventory counts? Inventory management software can help, but it isn’t always enough. You need to reconcile your inventory regularly to ensure accuracy and prevent losses. So, how do you perform effective inventory reconciliation?
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What This Article Covers:
What Is Inventory Reconciliation?
Inventory reconciliation is the cornerstone of efficient inventory management. It involves comparing physical inventory counts with on-hand inventory records to identify any discrepancies.
By conducting regular and accurate inventory reconciliations, businesses can reduce stock discrepancies and better understand why discrepancies occur in the first place.
In addition to reducing stock discrepancies, inventory reconciliation offers several other benefits. For example, it helps:
- Detect the loss and breakage of physical items.
- Locate outdated inventory assets.
- Showcase accurate inventory data.
- Ensure compliance with legal regulations.
To achieve these benefits, you must prioritize inventory reconciliation and conduct it regularly. This promotes inventory accountability and the identification of discrepancies, which you can address promptly.
By doing so, you can achieve greater efficiency in inventory management, reduce costs and make informed decisions based on accurate data.
Importance
Inventory management is a critical aspect of running any successful operation. However, even with the best tools and technology, discrepancies between inventory reconciliation reports and actual on-hand inventory can still occur.
This is where cycle counting and frequent inventory reconciliation come into play.
By conducting regular inventory checks, you can keep a close eye on any discrepancies and monitor the shrinkage rate. This can help you identify any potential issues, such as employee theft, administrative errors or supplier fraud.
If the shrinkage rate increases over time, it may be a sign you need to investigate further. Establishing loss prevention strategies can help reduce the likelihood of future discrepancies and improve inventory accuracy.
While it can be frustrating to deal with inventory reconciliation issues, it’s essential to prioritize this aspect of your business to ensure that you’re not losing profits due to unaccounted shrinkage.
So, make sure to cycle count and reconcile your inventory frequently to stay on top of any discrepancies and keep your business running smoothly.
Key Steps
Inventory management is an essential aspect of running any business that deals with physical products. However, even with the most organized inventory management systems in place, discrepancies can occur in inventory records.
This is where inventory reconciliation comes in to help you stay on top of your stock levels. Here’s the five-step guide on how to reconcile your inventory effectively:
Conduct Physical Counts
To begin the inventory reconciliation process, the first step is to conduct a physical inventory count. This involves manually counting all the products on your shelves, in your stockroom and in any other storage locations you may have.
It’s important to involve your team in this process to ensure the most accurate count possible.
It’s not uncommon for discrepancies to arise between your physical inventory count and the numbers in your records. This could be due to recording errors, theft or product damage.
By conducting a physical inventory count, you can identify these discrepancies and take steps to rectify them.
The traditional method of conducting inventory counts is using pen and paper or Excel spreadsheets, but modern inventory management tools have made the process faster and more efficient.
These tools enable multiple team members to count inventory simultaneously and update the POS system or standalone inventory management system in real time.
Compare Physical Counts With Inventory Records
After completing the physical inventory count, the next step is to compare the results with the recorded inventory levels in your POS system. This helps identify any discrepancies that may exist between the physical count and the recorded inventory levels.
Discrepancies can occur due to various reasons, such as administrative or human errors, theft or fraud. And when it does, the next step is to investigate and resolve the issue.
Investigate Discrepancies
Investigating discrepancies involves reviewing previous transactions and receipts to identify overlooked sales items or orders sent to the wrong location.
Examining your past delivery and sales records to recognize any overlooked errors, such as a misrecorded stock number or a simple math error, is also essential.
And lastly, conduct further physical inventory counts to identify any missing or misplaced products.
By identifying and resolving any discrepancies in your inventory, you can ensure that your records are accurate and reliable, which is essential for making informed decisions about your business.
Identify Discrepancy Causes
Once you’ve identified the cause of the discrepancies, it’s time to create a stock reconciliation statement. This will allow you to explain the discrepancies and override previous records.
However, if you can’t easily address the source of the discrepancies, it may be time to look into other possible causes.
Some likely sources of discrepancies include bad paperwork, miscounting or even theft. To reduce human error, ensure that you keep your POS records up to date.
If miscounting is an issue, change the frequency of inventory counts or provide employees with a refresher on cycle counting. In case of theft, it’s important to update your theft management systems and take necessary precautions.
Reconcile Counts
The final stage is to reconcile inventory records to match the results of your inventory count. The process of conducting inventory checks should be consistent to maintain accuracy. This helps minimize inventory shrinkage and is ultimately cost-effective.
Scheduling inventory reconciliations at regular intervals is also essential. However, this is a time-consuming process. Thus, it’s crucial to account for any delays. By doing so, you can ensure that your inventory records are up to date and you better understand your stock levels.
Methods
Inventory discrepancies can happen for various reasons, including human error, theft or system glitches. When such discrepancies occur, reconciling inventory becomes necessary to ensure accurate inventory records.
To reconcile inventory, you need to compare inventory records to actual stock levels and make adjustments. There are various methods of inventory reconciliation that businesses can use, depending on their size and needs.
Let’s look at some of them:
ABC Analysis
If you own a business, you understand the importance of maintaining a healthy inventory. But with multiple products and SKUs to keep track of, it can be overwhelming to determine the priority of items for reconciliation. This is where ABC analysis comes in.
The ABC method is a simple yet effective technique that helps you prioritize your inventory based on its value and sales volume.
By categorizing your products into three groups — A, B and C — you can quickly identify which items are most critical to your business’s success.
- Category A: Items make up 20% of your inventory but account for 80% of your revenue. These are your best-selling and highest-value products that you should closely monitor and reorder frequently to avoid stockouts.
- Category B: Items make up 30% of your inventory and account for 15% of your revenue. These are your mid-range products that still contribute to your revenue but may not require the same level of attention as Category A items.
- Category C: Items make up 50% of your inventory but only account for 5% of your revenue. These are your lower-value products that have the least impact on your revenue and require less frequent inventory reconciliation.
Random Sampling
Are you tired of constantly scrambling to reconcile your inventory whenever you remember or have a spare moment? The solution is simple — establish a set schedule for inventory reconciliation.
Whether it’s annually, bi-annually, monthly or weekly, having a consistent schedule ensures that inventory is always up to date and accurate.
Not only does this approach eliminate the stress of last-minute inventory checks, but it also helps you prevent discrepancies that can lead to lost profits and wasted time. By establishing a routine, you can streamline the inventory process.
Seasonal Method
One of the most critical aspects of managing inventory is staying ahead of demand. To do this effectively, you need to be proactive and stay one step ahead of the curve. That’s where seasonal inventory checks come into play.
If you sell products that are highly dependent on the weather or other seasonal factors, it’s crucial to check your inventory regularly to ensure that you have enough stock to meet demand.
By checking your inventory every season, you can anticipate future trends and make informed decisions about reordering quantities and points.
Staying on top of your inventory through seasonal checks can help you avoid stockouts, prevent overstocking and optimize your inventory levels for maximum efficiency.
Next Steps
In today’s fast-paced business environment, where supply chain disruptions and inventory shortages are becoming increasingly common, inventory reconciliation is a vital tool for ensuring your business’s long-term success and sustainability.
If you reconcile inventory regularly, you can identify discrepancies and take corrective action to prevent losses and improve your inventory management practices.
So why wait? Take the next step towards streamlined inventory management and start searching for software that meets your unique requirements today! You can use our free comparison report to jumpstart your selection.
How will implementing inventory reconciliation be advantageous for your business? Let us know in the comments below!