Warehouse Inventory Accuracy: Why it Matters and How to Improve It

Inventory accuracy is one of the most important aspects of warehouse management when it comes to supply chain businesses. It can be the difference between making a profit and losing money on your inventory. Unfortunately, many businesses struggle with maintaining accurate inventories. In this blog post, we will discuss why order picking accuracy matters and how to improve your inventory processes in your warehouse. We will also discuss some of the common reasons businesses fail at inventory accuracy and how Logimax WMS can help you overcome these challenges.

What is Inventory Accuracy?

Inventory accuracy is the degree to which a warehouse’s inventory records match its actual on-hand quantities. In other words, it’s how accurately your warehouse knows what items you have in stock and where they are located. This is important because the more accurate your inventory records, the better you can manage and control your inventory.

Top Reasons Why Inventory Accuracy Matters

Inventory accuracy is critical for warehouses, regardless of their size or type. Here are some of the top reasons why it matters:

Improving Order Accuracy:

One of the most important reasons why inventory accuracy matters is that it ensures that your customer orders are fulfilled accurately. If you don’t have accurate information about what items are in stock and where they are located, then there’s a good chance that you won’t be able to fulfill orders correctly. This can lead to unhappy customers and lost sales.

Prevent Inventory Loss and Shrinkage:

Inventory shrinkage is the loss of inventory due to theft, damage, fraud, or errors. This includes losses due to incorrect counts, errors in recording quantities, or intentional theft. If you don’t have an accurate count of the items in your warehouse, then it’s possible that some of them may be misplaced or stolen without your knowledge. This can quickly add up to significant losses for your business.

Maintaining correct inventory records will help you better identify any discrepancies and prevent losses due to shrinkage.

Reduce Costs:

Inventory accuracy can also help you save money in the long run by reducing costs associated with overstocking and understocking items. If your warehouse has too much of an item, then you’re spending unnecessary money on storage costs. On the other hand, if you don’t have enough of an item then your clients could lose out on potential sales.

Accuracy also has an impact on labor costs. Not having accurate records of your inventory means wasted time searching for products and making sure the right items are in the right places.

Keep Accurate Inventory Valuation:

Inventory accuracy also helps you keep an accurate inventory valuation. This is important because it helps you ensure that your financials are in order and that you’re not overvaluing or undervaluing an item. This is especially important when tax season rolls around and you need to accurately report your inventory values.

Real Inventory vs. Electronic Inventory Records

It’s important to note that in the real world, inventory and electronic inventory records don’t always match up. Real inventory refers to the physical stock that is stored in a warehouse. This includes all items such as raw materials, semi-finished goods, and finished products. Electronic records of inventory are digital databases or spreadsheets that track the movements of these real inventory items.

There are many reasons why these two types of information may not match up. Physical goods can get moved around, get lost or damaged, or even stolen without the warehouse manager knowing about it.

These discrepancies between real and electronic inventory can lead to false inventory records, which can have a serious impact on your business.

Common Causes of Poor Inventory Accuracy

We mentioned that inaccurate inventory records can lead to a number of problems, from lost sales and unhappy customers to increased labor costs and inventory shrinkage. But what causes these discrepancies in the first place?

Let’s dive in and gain a thorough understanding of why inventory accuracy can be so hard to maintain.

Data Entry Errors

One of the most common causes of poor inventory accuracy is data entry errors. This can be caused by user errors, such as typos or incorrect data entry, or system errors, such as faulty coding. It’s important to check data entries regularly and ensure accuracy before it affects your overall inventory accuracy.

Manual Processes

Errors are especially prone to occur when manual processes are used for recording stock movements, such as when a paper-based system is used to track inventory. This can be due to a lack of automation, or simply because the staff involved in the process don’t have enough knowledge or experience to properly record and track stock.

Human Error

As we’ve mentioned, human error can be a major cause of inventory inaccuracy. To prevent errors, it’s important to train employees on proper inventory procedures and ensure that all processes are followed correctly. Your WMS should provide an intuitive user interface that makes it easy for users to operate the system without any confusion.

Poor Stock Management

Poor stock management is another common cause of inaccurate records. This can include failing to keep track of inventory levels, not properly training staff on how to handle stock movements, or simply not having the right systems in place for tracking and recording inventory.

Obsolete Inventory

Obsolete inventory is another cause of inaccurate records. This can occur when outdated items are stored in warehouses without being marked as such, leading to confusion over whether or not they should be included in your recorded inventory.

Incorrect Counts

Incorrect counts are another common cause of inaccurate records. This can occur when physical stock levels don’t match up with the electronic records, leading to discrepancies between real and digital inventories.

Poor Record Keeping

One of the most common causes of poor inventory accuracy is poor record keeping. Accurate records are essential for maintaining inventory accuracy, so it’s important to make sure that all transactions are recorded correctly and promptly.

Theft

Theft is another major cause of inventory inaccuracy. To prevent theft, it’s important to have a secure system in place that tracks and monitors all inventory movements within the warehouse. Leading WMS software solutions provide robust security features that help reduce the risk of theft in your warehouse. Additionally, it’s important to install video surveillance and monitoring capabilities, which can help you keep an eye on inventory at all times.

Unreliable Tracking Systems

If your warehouse is using outdated or unreliable tracking systems, it can lead to inaccurate inventory counts. It’s important to invest in a modern, integrated system such as Logimax WMS that provides accurate and reliable tracking capabilities.

Inadequate Training

Improper training of staff can also result in poor inventory accuracy. It’s important to ensure that all employees are adequately trained on the inventory control process and warehouse management system before they begin their duties. Leading WMS systems should provide comprehensive training materials and an intuitive user interface so your staff can quickly get up to speed with the system.

Equipment Failure

Equipment failure can also lead to inventory inaccuracies. It’s important to ensure that all equipment is regularly maintained and kept in good working order to reduce the risk of breakdowns or malfunctions. Regular maintenance checks should be performed on any warehousing equipment to keep it functioning correctly.

Systematic Issues

Systematic issues can also cause poor inventory accuracy. This could include an outdated system, a lack of proper procedures, or incorrect data entry. It’s important to identify any systematic issues and address them promptly to improve your overall inventory accuracy. Your WMS should provide detailed reports and analytics that help you identify any systemic errors quickly and address them before they have an impact on your inventory accuracy.

Maintaining accurate inventory records is essential for the success of any business. By understanding the common causes of inaccurate records, you can take steps to ensure that your inventory data is always up-to-date and accurate. This will help you avoid potential losses due to shrinkage or errors in recording quantities, as well as keep inventory accuracy for valuation for tax purposes.

How to Improve Inventory Accuracy:

Now that we’ve discussed the main causes of inventory inaccuracy, let’s talk about how to improve accuracy in your warehouse. There are several important steps you can take to ensure accurate inventory counts, including:

Establish Clear Inventory Control Policies & Procedures

It’s essential to establish clear policies and procedures for managing inventory in your warehouse. This should include proper data entry protocols, tracking systems, training materials, and security protocols. Taking the time to develop these processes and ensure that all employees are aware of them is key to achieving accurate inventory counts in your warehouse.

Invest in Robust Tracking Systems

Having a reliable and accurate tracking system is essential for improving inventory accuracy. Investing in modern, integrated systems such as RF and barcoding can help you track and monitor all of your inventory movements with ease. This will also reduce the risk of human error when it comes to data entry.

Utilize Technology to Automate Processes

Automation can also help you improve inventory order picking accuracy. Automating mundane tasks such as data entry or order fulfillment can reduce the risk of human error and free up staff for more important tasks. Automation can also improve accuracy by removing the need for manual data entry, giving you greater control over your inventory numbers.

Train Staff on Proper Order Picking Processes

Ensuring that all employees are adequately trained on the inventory management and control process and warehouse management system can go a long way in improving accuracy. Provide comprehensive training materials, give staff ample opportunities to practice, and make sure they understand best practices for operating the system and performing inventory counts. The necessary tools and resources will help reduce errors and improve accuracy.

Regularly Maintain Equipment

It’s important to regularly maintain all warehouse equipment and keep it in good working order. This should include anything from automated systems to manual tools, as any malfunctions can lead to inaccurate inventory counts.

Review & Analyze Data Regularly

It’s essential to review and analyze your data on a regular basis to ensure accuracy. This includes data entry errors, systematic issues, and any other discrepancies. Logimax WMS provides detailed reports and analytics that make it easy to identify any inventory inaccuracies quickly so they can be addressed promptly.

Develop Inventory Control Policies and Procedures

Ensuring that your warehouse has clear and consistent inventory management and control policies and procedures is essential for improving accuracy. These should include best practices for data entry, tracking systems, security protocols, and training materials. Taking the time to develop these procedures will ensure that all employees are aware of them, reducing errors in the inventory management process.

Implement Barcoding

It should go without saying, but implementing a barcoding system can help you improve accuracy in your warehouse. Barcodes are quick, easy to use, and provide an efficient way to track and manage inventory. This can help reduce the risk of human error, as well as provide an additional layer of security for your warehouse operations. If you run a small operation and haven’t yet implemented barcoding, now is the time to do so!

Implement a Warehouse Management System (WMS)

A best-of-breed Warehouse Management System (WMS) can help you automate processes and streamline inventory management. A WMS can also provide you with real-time data, analytics, and reports to help you identify any inventory discrepancies quickly. This can go a long way toward improving inventory accuracy in your warehouse.

WMS vs. IMS (Inventory Management System)

Many people confuse the terms WMS and IMS. While they have some similarities, they are two distinct types of software. An Inventory Management System (IMS) is designed specifically for inventory management, while a Warehouse Management System (WMS) offers an end-to-end solution that focuses on warehouse operations as a whole.

Achieve Accurate Inventory with Logimax Warehouse Management Software

Logimax WMS provides comprehensive features and best-in-class inventory tracking capabilities to help you improve accuracy in your warehouse. With Logimax WMS, you can stay on top of your inventory at all times and ensure that you always have the right stock levels. Our real-time data, analytics, and reporting features make it easy to identify any discrepancies quickly and take corrective action right away. Our software also makes having a separate inventory management system redundant since it provides all of the features and more that an IMS offers.

The Inventory Accuracy Formula

Inventory accuracy is an important metric for measuring the effectiveness of your inventory management processes. It’s typically expressed as a percentage, with 100% being perfectly accurate. Calculating inventory accuracy requires taking the number of items accurately counted and dividing it by the total number of items in your warehouse. This will give you an idea of how accurately your inventory is being tracked.

For example, if you have 1000 items in your warehouse and 900 of them are accurately counted, then your inventory accuracy would be 90%.

What’s a good inventory accuracy rate?

A good inventory accuracy rate is typically considered to be 97% or higher. Anything lower than that could result in problems such as stockouts, excess inventory, inaccurate financial records, and customer dissatisfaction.

Calculate Inventory Accuracy with Physical Counts

Physical counts are an important part of inventory accuracy. They allow you to compare what’s actually in your warehouse against what’s being tracked in your system. This can help you identify discrepancies and take corrective action if necessary.

When conducting physical counts, it’s important to have clear guidelines and processes in place to ensure accuracy. This should include having designated staff members who are responsible for counting, as well as a system for tracking and verifying the counts. Examples of how to perform physical inventory counts include implementing a cycle counting program and full-stock counting.

Calculate Inventory Accuracy by Inventory Valuation

In addition to physical counts, you can also calculate inventory accuracy using inventory valuation. This involves comparing the value of your stock on hand with the value of your system’s records. If there’s a discrepancy, it could be an indication that something is not being tracked accurately.

Conclusion

The ability to maintain inventory accuracy is essential for running any warehouse operation. It’s important to have a clear understanding of best practices, as well as the right tools and resources in place to ensure accuracy. Having a best-in-class Warehouse Management System (WMS) like Logimax WMS can help you achieve that without investing in multiple systems such as a WMS and an IMS. By leveraging our real-time data, analytics, and reporting features, you can greatly enhance your inventory accuracy measures. Thereby staying on top of your inventory at all times and ensuring that everything is accurately tracked.

With Logimax WMS, you can rest assured that your inventory accuracy is at its best. Contact us today to learn more.

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