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The Top Causes of Inventory Inaccuracy

Inaccurate inventory costs are high—and often hidden

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Stock counting in a warehouse

Inventory issues cut to the core of any warehousing or order fulfillment operation. When your processes are set up right, you’ll have more accurate inventory. Experts estimate that every .5% of inventory inaccuracy costs the equivalent of a full time employee in these various types of waste. The time it takes to track down, repair, correct, and re-do may make this a low estimate, depending on the situation.

What are some of the root causes of inaccurate inventory?

Companies with excellent inventory accuracy are better at fulfilling orders and creating satisfied customers

They tend to be more profitable, since they don’t have to carry reserve inventory to deal with shortages. They don’t have the type of overstocks that cause write-offs. They don’t have backorders that clog their systems and annoy customers. They have better pick rates, and better morale within their order picking teams, since the frustration of out-of-stock orders isn’t laid on them. Sales and marketing isn’t hampered in their ability to make promises to customers. Finance people don’t have to spend time amending records.

Accurate inventory reduces waste of all kinds – money, time, and energy. Most importantly, it increases customer satisfaction by reducing errors and returns. It’s a critical number for any warehouse, manufacturing central storage area or other operation that requires stock.

The causes of inventory inaccuracy

  • Theft and pilferage. (See warehouse security white paper).
  • Product damage – in particular damage that goes unreported. At times, damaged product may be removed from stock locations and not reported so inventory can be adjusted.  (See ways to reduce product damage).
  • Incoming delivery receiving errors. When receiving is off, the process is broken from the very start. Be sure your receiving process adequately and accurately counts incoming deliveries.
  • Labeling and identification issues. Inventory isn’t correctly marked or entered into information systems.
  • Sticking with a manual or paper-driven picking system. When barcode, RFID or light directed systems could improve accuracy, they can be transformational.
  • Miss-pulls from due to human error. Error might be due to inadequate training, attitude, process issues, speed of operation, picking schemes or other issues. It’s always easy to blame the order picker, but the root causes can be deeper and more systematic. (See The Root Causes of Order Picking Errors).
  • Incorrect or disorganized pick locations. Confusion and disorganization at pick locations can result in inventory issues. You should constantly evaluate how, where and from what orders are picked to be sure your pick bins are not difficult for pickers to utilize.
  • The receiving/putaway process is flawed, or does not have the proper safeguards to insure that the right quantity of product is in the right place at the right time. You might also have incorrect bills of material or a poor process for checking it.
  • Lack of cycle counting. This may be your strongest tool in the war against inaccuracy.
  • Not taking transactional delays into account. IS systems are often plagued with timeouts where transactions are “hung” in various queues. If you adjust inventory too quickly without taking these delays into account, you’ll drive inaccuracy. Adjustments will have to be dealt with later.

What are ways to reduce these issues?

It’s been said that the root cause of most issues isn’t with the employee executing the work, and that’s probably true. Once you identify an issue, working with your picking, receiving, IT, and other involved parties to find the root causes and designing processes to address them is critical to making it right.

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Scott Stone is Cisco-Eagle's Vice President of Marketing with more than thirty years of experience in material handling, warehousing and industrial operations. His work is published in multiple industry journals an websites on a variety of warehousing topics. He writes about automation, warehousing, safety, manufacturing and other areas of concern for industrial operations and those who operate them.

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