Research shows that an average retailer has 65% inventory accuracy. Brands lose a lot of time, money, and energy in finding the perfect balance between stocks and customer demand. Therefore, inventory accuracy is important to eliminate these issues. Inventory accuracy makes demand forecasting easy and reduces operational overhead while helping avoid stockouts and overstocking. Continue reading to learn more about the significance of inventory accuracy and how to raise your accuracy rate.
What Is Inventory Accuracy?
Inventory accuracy is the percentage you get when you compare the actual count of stock to the count of stock recorded digitally. This percentage should be monitored carefully because it shows how well you manage your inventory.
Why Is Inventory Accuracy Important?
For brands that sell products, inventory accuracy is an important factor. Here is why:
1. Enhances Inventory Control Processes
The supply chain and order fulfillment process may suffer from inaccurate inventory counts. Inventory accuracy enhances inventory control procedures.
2. Reduces Overstocking and Stockouts
You can easily make wiser purchases with inventory accuracy because you better understand your supply levels. Accurate stock counts also help you in calculating the volume of inventory required to satisfy demand.
3. Lowers Operating Costs
Your operations costs can be greatly reduced with inventory accuracy accounting. The inventory tracking reveals which products are selling well and which are not. Having a SKU (stock-keeping unit) that does not sell will increase your carrying and operating costs.
4. Makes Inventory Forecasting Easier
When working with inaccurate data or inventory information, estimating your supply needs is impossible since you cannot have confidence in your numbers. It is why inventory accuracy is so important to your forecasting efforts. It guarantees that your estimates are based on accurate inventory data.
Inventory Accuracy Formula
You can use the following formula to calculate the inventory accuracy rate:
Inventory accuracy = [counted items/items on record] * 100
- Start by calculating the quantity of a certain SKU you currently have in stock.
- Then multiply that result by 100 after dividing it by the SKU's recorded stock count.
- A percentage is used to represent the answer.
- An average inventory accuracy percentage often ranges from 65-75%.
How to Measure Inventory Accuracy?
Reliable stock counts are a requirement for using the method to calculate your brand's inventory accuracy rate. You can base your calculations on a physical inventory count or inventory valuation.
Method 1: Using Physical Counts
- You'll need two employees to count each SKU separately and compare the results when taking stock.
- Record the result if the two team members arrive at the same figure. If not, they should recount the information until the result is the same (this will eliminate any human error).
- After you have finished counting each SKU in that zone, use the data from your counting team to determine your accuracy rate. It is known as "inventory reconciliation."
- Your inventory is correct if your physical count is the same as your records.
Method 2: Using Inventory Valuation
- Your unsold inventory is valued in rupees at the end of a reporting period.
- Take the value of your actual inventory for this strategy.
- To quickly and accurately calculate the value of their available inventory, most companies use barcode scanners.
- After that, divide it by the estimated value of your product.
Factors That Cause Inaccurate Inventory Counts
Here are the most common reasons:
1. Loss of Unrecorded Inventory
Inventory shrinkage is often referred to as inventory loss. It occurs when fewer items are in stock than on the books. When these losses are not reported, it can significantly reduce inventory accuracy. Unfortunately, damaged goods frequently lack this documentation.
2. Order Fulfillment Mistakes
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.
3. Poorly Organized Warehouses
A disorganized warehouse can reduce your inventory accuracy. It is because in a congested area, there are more chances of mistakes that could damage your inventory counts..
4. Returns are Mismanaged
Mistakes in handling returns can cause inventory problems. When items are not properly put back into inventory due to human errors, the return records will not match your actual physical stock.
How to Improve Inventory Accuracy
Let's look at the five recommended practices to increase inventory accuracy for your business:
1. Standardize Bins and Pallet Sizes
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.
2. Use the Latest Technology for Printing labels
Your business can benefit from integrated solutions to generate, manage, and print labels for inventory management or shipment needs with label printing software.
3. Use Cycle Counting
Cycle counting is a continuous inventory auditing method verifying that your physical inventory counts and records are accurate. A tiny amount of the stock must be counted daily as part of this process.
4. Conduct Routine Inventory Audits
Inventory audits make sure that your accounting is accurate by comparing your actual inventory levels with your most recent financial records.
What Is a Good Inventory Accuracy Rate?
According to the RFID Lab at Auburn University, businesses typically achieve inventory accuracy between 65% and 75%. It covers firms that employ barcode scanning and SKUs to manage inventories. Naturally, a percentage ranging between 65%-75% is considered average, and companies must aim for at least a 97% inventory accuracy rate.
Accuracy From Warehouse to Doorstep Is Just as Important
Increased inventory accuracy can be a huge benefit for your company. However, there are other areas of logistics where accuracy is important.
Even if the stock is accurate and the order is correctly sent, it will only matter if the driver delivers it to the correct address. You can lose customers as a result of that error.
Boost Your Business With TranZact's Inventory Management Solutions
Efficient Inventory Accuracy is important for any successful business. Implementing real-time inventory management and the latest ERP systems are crucial steps to achieving this.
TranZact offers top-notch inventory accuracy solutions tailored to your needs. With our cutting-edge programs and facilities, Indian SMEs can attain precise inventory accuracy, improve supply chain operations, and boost their bottom line.
FAQs on Inventory Accuracy
1. What is perpetual inventory accuracy?
Perpetual inventory accuracy is a real-time approach to managing inventory levels, where stock counts are continuously updated as goods are received, sold, or moved.
2. What are some best practices for maintaining inventory accuracy?
Some inventory accuracy best practices include regularly comparing physical counts with system records, conducting spot checks, using ABC analysis to prioritize inventory items, and conducting regular employee training.
3. How can a company improve inventory accuracy by aligning people, processes, and technology?
Companies can do this by training employees, establishing strong inventory control procedures, and investing in advanced inventory management systems for better tracking and reporting.
4. What is the inventory accuracy benchmark?
The benchmark for inventory accuracy is 97% or above, but most companies only achieve an average inventory accuracy rate of 65%-75%. Keep in mind that the possibility of inventory data errors increases as your business sells more products.
5. What are the main goals of inventory accuracy?
The main goals of inventory accuracy are improved inventory management techniques, reduced stockouts and overstocking, and decreased operational costs.
6. How can inventory accuracy be maintained?
Your business must increase its bin and pallet sizes, implement a label printing program, and conduct routine inventory audits to maintain inventory accuracy.
