A Guide to Inventory Accuracy

It’s important to keep track of stock to inform customers about which of your products are available and which aren’t. An accurate inventory also lets you plan around future shortages and demands. By keeping track of your production stock and raw materials, you can account for existing products and know when you need to make more.

Because inventory is vital for business functions, your counts should be as accurate as possible. Many companies use programs like an inventory management system to keep records of their stocks, while others prefer basic counting systems.

Businesses should take every possible measure to avoid inventory accuracy issues that could lead to financial complications. We’ve put together this guide to inventory accuracy to help.

What Is Inventory Accuracy?

Inventory accuracy is a metric for how closely your inventory management system records match your in-store or warehouse stock. In other words, it’s the difference between your records and what’s actually on the shelves.

Inventory accuracy typically appears as a percentage. Having 95% inventory accuracy means that most of your records match up. 20% inventory accuracy means you’re missing most of either your stock or records. Companies should aim for accuracy as close to 100% as possible.

Rapidly moving stock can make it challenging to maintain perfect accuracy, as employees may find it challenging to keep up with products constantly leaving the shelves and warehouse. However, companies should strive for the highest inventory record accuracy possible.

The Importance of Inventory Accuracy

Inventory accuracy is essential for both current and future company dealings. Exact inventory counts help your business increase its efficiency and customer satisfaction.

Here are some examples of how inventory accuracy benefits your organization:

• Keeping enough stock for customers: You can keep your online and in-store stock numbers accurate when your inventory records are correct. When a customer orders or requests an item, you’ll know you have adequate stock to process the order. If an item isn’t in stock, you can label it as such and alert your buyers. Overall, inventory accuracy helps you avoid last-minute cancellations on orders and keeps customers satisfied.
• Accurate money estimations: Precise revenue estimations are one of the biggest benefits of inventory accuracy. Investors and suppliers rely on accurate financial reports, so it’s important to stay as precise as possible. Keeping correct inventory counts helps you keep your balances up to date and prevents any financial complications from wrong estimations. You can also forecast your company’s needs and plan for the future with the proper financial recordings.
• Happy customers: Informed customers are happy customers. When you keep stock counts updated, customers are much more likely to have a positive experience with your business. Accurate inventory helps with order efficiency, and customers will enjoy the quick turnaround times. In turn, they might spread the word about your brand to their friends.
• Productivity improvements: Consistent inventory counts can help you keep your warehouses and stock bins organized. Many inventory techniques involve arranging your products into sections to make counts easier. These same organizational techniques make it easier for employees to identify and ship out items. You can maintain shipment times or even improve them with the right inventory organization.

Overall, keeping accurate inventory records is essential for business performance and customer satisfaction and helps you stay on track with your financing and marketing goals.

How to Calculate Inventory Accuracy

Businesses require thorough counts to take accurate inventory. Your counts should be as detailed as possible, leaving no item unchecked. Your employees need attention to detail and lasting motivation to complete their counts. It may be best to conduct a count over multiple days — giving your employees breaks in between lets them return to their counts with renewed energy and focus.

Companies typically use two major ways to calculate inventory accuracy. Some prefer to count and compare stocks manually, while others use a formula to take accurate inventory counts.

Manual Count

In a manual count, employees physically count each item in stock and compare the tally to existing records. While this method can quickly become time-consuming, the practice is reasonably straightforward if you have a smaller organization and low order volumes.

Follow these steps to complete a physical inventory calculation:

1. Perform a detailed inventory count: First, complete a thorough count of all existing inventory. This total could include finished products or raw materials, depending on the nature of your business and how you typically track inventory. Be sure to account for current orders and how they might lower or raise existing counts. You can use a tracking system to help you keep count or keep it entirely physical with just a clipboard.
2. Recount everything: Be sure to have multiple people perform the same manual count, comparing the numbers until everyone’s counts match. While human error is natural, multiple calculations will let you make sure you’re counting accurately.
3. Compare it with your inventory records: Once you have a total tally of your products, you can compare it to your records. Verify that the number you recorded matches the one on your register. If it does, you have perfect accuracy for that product. If it doesn’t, mark it as a discrepancy. Complete this process for each item or section you counted.
4. Analyze your findings: After comparing your tallies with your records, you should have a clear measurement of your inventory accuracy. If you find discrepancies, study the places where differences were more common and plan how you will address these in the future.

Physical inventory counts work best when you complete them regularly. A weekly count is the best way to maintain the progress of inventory fluctuations.

Formula

Some businesses use a formula instead of a manual count to calculate their inventory correctness. Using this strategy will give you a quantifiable number for your inventory records. Follow these steps to calculate your inventory with an equation:

1. Calculate your physical inventory: Start with the number of items in your physical inventory. You can obtain this number with a manual count or retrieve it from a database.
2. Calculate the number of units recorded: Find the registered inventory number from your records. This number states how many items should be on your shelves.
3. Divide your physical inventory by the recorded number: Divide the number in your physical inventory by the number in your records.
4. Multiply the result by 100: If you want a percentage, multiply your result by 100. The final number is your percentage of inventory accuracy.
5. Analyze the results: Study the percentage you calculated. Ideally, your inventory calculations should be close to 100%. If your result is significantly lower, you might need to analyze where and why the discrepancies occurred.

Common Inventory Accuracy Problems

Even with the precision that comes with proper inventory records, you may still run into problems. It’s important to recognize and avoid these problems as much as possible to keep your accuracy percentages high, as even minor issues can lead to significant consequences down the road.

Any of the following inventory accuracy issues might cause a lower accuracy measure.

Transactional Issues

Transactional problems are a common cause of inaccurate inventory records. When consumers purchase your products — whether physically or online — it can take time for your inventory system to reflect the departed stock accurately.

Other transactional problems that can affect inventory accuracy include:

• Entering incorrect quantities: Whether it happens on the part of the seller or the buyer, typing in the wrong number is a natural human error. You might accidentally record a sale of 1,000 units when it was only 100, or a customer might intend to buy 12 items but type in 120. While this is common, it makes inventory accuracy harder. It could take months to realize someone made a mistake and even longer to rectify it.
• Processing issues: Digital errors can occur just like human ones. Digital systems might process transactions incorrectly or not at all. A sale that fails to process will complicate later inventory inspections.
• Inadequate training: You may be able to solve transactional issues if you understand how to correct digital mistakes. However, insufficient training can mean that not all employees or supervisors will know how to solve these problems. The more unfamiliar people are with the system, the less likely they are to fix inventory errors.

Quick Solutions

Another common problem with inventory accuracy arises when employees make quick adjustments to fix significant issues. In the interest of saving time, workers might use an adjustment method rather than a comprehensive evaluation. 

For example, finding that one of your products only has 40% inventory accuracy is a significant problem. Solving this issue would take an extended period of evaluation and checking each item against inventory records, buying records and online data. You might even need to perform regular weekly inventory checks until you root out the cause of the discrepancy.

However, if an employee discovers where part of the inventory went missing, they might assume that also accounts for the rest of the discrepancies. If 20 units of an item went missing because someone forgot to scan them out of the system, the employee might assume that forgotten scans also accounted for the rest of the lost inventory. By trying to find an answer quickly, they can miss other problems.

When addressing inventory inaccuracies, it’s best to examine your entire stock. Try starting with a complete manual count and updating inventory records as needed. Stay away from altering numbers or other temporary fixes that won’t serve your inventory accuracy in the long term.

Virtual Inaccuracies

Digital inventories can create their own problems. Glitches or server crashes could make you lose years of hard-earned inventory stats. To prevent the outcomes of virtual crashes, make sure you have backups of your records and files. Even if you encounter a glitch, you won’t lose everything with backups.

Some companies use digital records to record anticipated shipments of new products, labeling future holdings and products as in-stock before their arrival. If your records reflect that you’ve received an item when you actually haven’t, the discrepancy will complicate your inventory counts. When your records don’t reflect accurate holdings, you can overcount or undercount your actual products.

Measurement Problems

Your unit of measurement (UOM) is the figure you use for counting your product. For example, if you sell bottles that come in boxes of 12, you might use a UOM of one box.

While you can measure your UOM with any type of physical unit, it’s essential to use the same UOM when communicating with suppliers and customers. If you ship your bottles in boxes, list them that way on your website rather than as cases or single units. Differences in your UOM can lead to complications like confused customers placing incorrect orders or your buyer purchasing the wrong quantity of supplies.

Identify one UOM per product to ensure accurate inventory counts. Standardizing your UOM will help you maintain clear communication with customers and suppliers and help keep your inventory records accurate.

How Finale Inventory Can Help

At Finale Inventory, we understand the importance of inventory accuracy. We’ve dedicated ourselves to providing inventory management solutions from our company’s beginning, and while our services extend to all businesses, we especially love working with small and growing businesses.

Many of our services help directly with increasing inventory accuracy. We offer a secure, modern and cost-effective Cloud-Based Inventory Management system that streamlines and perfects the inventory process. In addition to physical counts, you can implement our digital software for further data processing and analysis.

Here are more exciting features of Finale Inventory’s services:

• Management pages: Finale offers a variety of management assistance, from inventory and e-commerce to purchasing and warehouse management. Our online systems simplify your sales channels and keep everything you need in one place. The quick format allows you to view current inventory records easily.
• Purchasing capabilities: We also provide you with purchasing capabilities to further streamline your inventory process, letting you conveniently restock your store or warehouse with the click of a button. Our analysis software also recommends the best time to schedule a reorder to maximize profits.
• Accounting functions: Our accounting systems give you a full report on your financial status. After each transaction, the piece shifts to reflect your upgraded financial position.
• Barcode help: Finale can generate UPC or QR codes for your products. Our label generator is customizable and easy to use, ensuring a sufficient tag for each item.

Contact Finale Inventory Today

At Finale Inventory, we focus on improving inventory efficiency to help you manage your supply flow better. Our accessible and modernized offerings simplify your inventory process, and our adaptable software easily grows to account for developing businesses. You can trust our detailed reports to present the best depiction of inventory accuracy throughout it all.

Our world-class services are a straightforward, cost-effective way to view all inventory updates whenever you need them. You can get off to a smooth start with no setup costs or long-term commitments.

Choose Finale Inventory to improve your inventory accuracy, and contact us today to get started.