The relentless drive of modern technology has created an increasingly accurate world and done it in ways that often go unnoticed.
Look at mobile phones, for example. These revolutionary devices have powerful functions we take completely for granted. Synchronized Clocks, SMS, GPS, et al.
Those are not simply useful features — they enhance our accuracy — between locations, clarifying communications, and keeping us on time.
Advancements in digital accuracy have played an enormous role in the rise of eCommerce, as well. The same types of tools that have benefited individuals have helped online retailers identify hyperlocal trends, deploy personalized marketing, and grow revenues at scale.
However, areas for process improvement always exist, and for many merchants, inventory management is a continual battle. Achieving and maintaining inventory accuracy with complex supply chains, multiple warehouses, and an array of fulfillment channels is a test for even the most experienced eCommerce brands.
At SkuNexus, we think accuracy should be a primary goal of any successful online merchant, and our inventory management software solutions are designed with that in mind. Here, we want to discuss a handful of tools, both digital and analog, that any merchant can use for improving inventory accuracy.
What is Inventory Accuracy?
Before we explain all the ways you can improve it, let’s define our terms. Inventory Accuracy is the difference, expressed as a percentage, between what you actually have in available physical stock and what you think you have, i.e. what the inventory record shows in your inventory management system (IMS).
Inventory Accuracy Rate is calculated as: (Counted Items/Items on Record) x100
For example, if a merchant has 200 units in his official record and a warehouse inspection shows only 190, the inventory accuracy for that particular item is: (190/200) x100 or 95%.
In general, low inventory accuracy is usually the result of one of three things, or in worst-case scenarios, a combination thereof.
- Disorganized Storage: Lack of structure and operational control in warehouse operations or within a retail environment will lead to disorganization. Items will inevitably end up in multiple wrong locations and this is a recipe for disaster in the accelerated environment of eCommerce.
- Shrinkage: This generally refers to/measures inventory that cannot be accounted for due to human errors like accidental damage or miscounting and extends to extremely serious issues such as theft and/or supplier fraud.
- Suboptimal Inventory Management: This can be the result of an inadequate, poorly integrated inventory management system, a system built upon manual processes (pen & paper, entering data into spreadsheets), or no system whatsoever. All are hindrances to growth and can develop into crippling problems for any online retailer. A worthy IMS will sync inventory across all sales and fulfillment channels and act as the single source of truth for your stock.
By prioritizing inventory accuracy, merchants can reap substantial benefits. Clearer data inform demand planning, aid in purchasing decisions, avoid excess stock levels (and stockouts), and help to reduce carrying costs.
Inventory Accuracy Tools
An array of methods are available for reducing inventory inaccuracies. These can be profoundly helpful for merchants having significant issues, and also used to fine-tune accuracy levels for those with solid measures already in place.
As tools for managing inventory go, none can match the utility of the barcode scanner. It empowers merchants with the ability to track inventory at every stage, and in every location, of its journey from receiving to fulfillment to shipping. Disciplined, rigorous barcode scanning is a fundamental element of both warehouse management and inventory control and should be the first priority of any company not already using it.
When used in an integrated management system (Order, Warehouse, Inventory, Fulfillment, Shipping), barcode scanning provides a system of checks and balances that will identify errors (e.g. item stored in wrong bin, wrong item picked for order, etc.) in real time and demand immediate correction before being allowed to proceed. This alone can dramatically improve inaccurate inventory levels due to misplaced items, disorganization, etc.
While barcode scanners are powerful weapons in the inventory accuracy arsenal, brands need to develop their own systems of inventory reconciliation. A range of processes are used to reconcile inventory, i.e. match record with reality, and some, or all, may be needed to determine exactly where any discrepancies may lie.
As much as we embrace technology and automation within the eCommerce backend, inventory accuracy demands that we get physical on occasion. There are two types of inventory counts: Full and Cycle.
Full Inventory Counts
This is what is generally thought of when one thinks about “taking inventory.” A full count involves shutting down a warehouse and counting every item. These counts can be tracked with anything from pen/paper to barcode scanners to RFID tags, but the result is the same: the entire physical inventory will be counted.
On the upside, this method provides a comprehensive, current count of your stock. On the downside, a full closure can be extremely disruptive (and costly), not to mention a potentially massive undertaking that can itself result in errors.
Inventory Cycle Counts
Cycle counting is a method of counting certain products on a regular basis to help companies confirm the inventory levels reflected in their IMS. As opposed to full counts, the limited scope of cycle counts allows businesses to save money by performing them during normal working hours.
It should be stated that regular basis can mean every day. Daily cycle counts and reconciliation of inventory variances can be useful to track high-volume items, investigate suspected theft, or simply to manage a facility with a large number of different SKUs.
Several methods of cycle counting exist, but the most common ones involve counting the highest-in-value items to the company (revenue-generating, most frequently ordered, etc.). Other options include conducting counts for random SKUs scattered around the warehouse or focusing on a specific area.
Once the inventory check has been completed, more steps lie ahead. First, physical stock gets compared to the digital record. Any discrepancies must then be examined, and all possibilities considered and investigated.
This can be a difficult process, however the long-term pluses to your business far outweigh the short-term headaches. Conducting counts and reconciliations on a regular, scheduled basis yields increased inventory accuracy and serves to further hone the results of your effective inventory management operations.
The ultimate key to optimizing inventory accuracy is organization. Having an organized system in place for your backend operations means well-defined workflows, clear communication, efficient processes, and the automation of manual decision-making. At SkuNexus, these lie at the heart of the solutions we design for our eCommerce customers.
If you would like to see what SkuNexus can do for your business operations, please schedule a demo.
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