Inventory Accuracy Matters: Strategies for Improving Warehouse Operations

Inventory counts are one of the most straightforward ways to improve a business’s warehouse operations. Stock accuracy is a critical aspect of efficient warehouse operations, ensuring the recorded quantity and location of each item matches the actual physical count. It enables timely order fulfillment, prevents stockouts and overstocking, and enhances customer satisfaction.  

This article explores the importance of inventory accuracy and how businesses can assess it, as well as provides tips on how to improve their precision, including utilizing cycle counts and solutions like barcode scanning and RFID technology. Implementing an inventory management system also greatly contributes to maintaining accurate records.

What Is Inventory Accuracy?

Inventory accuracy refers to the rate at which your expected stock aligns with your actual levels. If your accuracy is high, it means the methods you use to track and manage the physical goods in your warehouses are reliable. Calculating that precision entails auditing inventory and then comparing the total to your expected count. From there, you can ensure the reported quantity and location of items at the SKU level are true — and take steps to optimize and improve where they don’t. 

High accuracy is critical for efficient warehouse operations. It enables timely order fulfillment, prevents backorders, stockouts, and overstocking, reduces inventory discrepancies, and allows you to manage costs while improving customer satisfaction. However, staying on top of inventory can be difficult. You have to track goods at the SKU level, implement software to manage stock across all warehouses, and conduct regular audits. 

How to Calculate Inventory Accuracy 

As previously mentioned, businesses determine their inventory accuracy by physically counting the items in storage and comparing that amount to the number of items accounted for in their inventory system. The formula for inventory accuracy is as follows:  

Inventory Accuracy Percentage = (Units in Storage / Units Accounted For) x 100

This percentage shows the degree of discrepancy so you can track improvement over time. 

You can calculate inventory accuracy at a warehouse, category, area, SKU, or even bin level. Drilling down enables you to identify which categories or SKUs are problematic. For example, looking at total inventory could reveal you experience errors 5% of the time. But, if you trace most of those mistakes to one type of product, you can more easily look into why and then work to remedy the root cause. 

Why Inventory Accuracy Matters

Inventory accuracy gives you a reliable overview of what’s in your warehouses and where. That allows you to calculate replenishment and reorder points, assess stock needs, and optimize costs across the supply chain. 

• High inventory accuracy improves order fulfillment rates, which in turn strengthens cash flow and customer relationships. 
• Accurate inventory management guarantees financial records represent stock values precisely, thus preventing discrepancies. This is vital for effective budgeting, forecasting, and maintaining healthy cash flow, and it also facilitates smoother audits; when you trust your inventory accuracy, you reduce the time used to recount.
• Discrepancies can lead to stockouts or overselling, both of which result in delayed or canceled orders. They can also cause back orders and late deliveries, which negatively impact the customer experience and your business. Ensuring truthful inventory levels supports your ability to meet customer demand reliably, and that enhances buyer trust and satisfaction. 
• Maintaining correct records lets you assess product demand and stock levels, whether to guide business decisions like scaling to a new region or for simple restocking. Utilizing historical and current inventory data for demand prediction, inventory management simplifies procurement, production, and delivery processes.
• Inaccurate inventory can increase operational and holding costs either by having too much or too little stock. If you pay to store a surplus of inventory you don’t even know for sure is there, you’re taking on unnecessary expenses. Additionally, you won’t know when inventory goes missing due to damage, pick errors, or theft. 

• If you don’t know what inventory you have, end-of-year accounting becomes a major headache.

What Causes Inventory Inaccuracies?

A number of issues can weaken inventory accuracy, including human error, theft, damage, inadequate record keeping, and poor warehousing practices. Understanding these causes can help you avoid them and increase your inventory accuracy.

• Self-store/Self-fulfill: Most eCommerce shops don’t have the infrastructure to manage inventory on their own. If you still hold stock in non-professional warehousing, you’re going to run into issues that will continue to escalate as you scale. Investing in professional warehousing gives you access to technologies like RFID scanning, WMS, and real-time inventory tracking, which can be expensive without a 3PL. 
• Inadequate Integrations: Many eCommerce sellers don’t have inventory management that tracks outgoing shipments. So, although you track what’s in the warehouse, without integration at the front end or in transportation, there’s no direct update on warehouse stock as front-end inventory changes. With a TWMS though, you gain insight into units on hand at the SKU level, how much is inbound, and what’s at the docks, in bins, and in transit to the customer. 
• Poor Returns Tracking: If your business runs reverse logistics, you have to be able to sort inventory back into your system. That involves scanning items back in when they’re deemed good enough to resell. 
• Human Error: Human error can be a major contributor to inaccurate inventory counts (for instance, if products are stored in the wrong places, if a box of 12 is logged as 10, etc.). To minimize mistakes, you need to provide staff training. 

How to Improve Inventory Accuracy

Techniques to hone inventory accuracy include regular cycle counting, adopting barcode and RFID technology, staff training, streamlining receiving and shipping processes, and leveraging inventory management software for real-time tracking. 

Cycle Counts

It may seem obvious, but conducting regular checks on inventory is the best way to improve accuracy. Cycle counting is a non-disruptive method that doesn’t require halting warehouse operations, unlike the traditional approach. Prioritizing high-value, fast-moving items, it involves ongoing counting of a sample of the inventory, with only a specific warehouse section put on hold at a time. 

Implementing a cycle counting program can increase your inventory accuracy, prevent discrepancies, and enable product-based businesses to make informed decisions about stock management. That means selecting a section such as a category of goods, counting them, and then continuing the process with ongoing counts. 

Regular Inventory Counts and Audits 

Cycle counts are highly effective for ongoing measurements, but you’ll still want to implement regular audits; specifically, a yearly physical count and audit are good practices. If your current inventory accuracy is low, you might want to conduct your audit twice a year until your precision improves. From there, you can reconcile inventory by comparing the audit results to the expected count, then look into where discrepancies occur. 

Hardware Solutions

Technology like barcode scanning and RFID allows warehouse staff to locate items quickly, thus minimizing the need for manual data entry while enhancing overall productivity. In turn, the resulting streamlined process can improve inventory accuracy. Introducing print-on-demand labels and integrating labeling into pick and pack means goods are scanned into and then out of your warehouse when they ship, which also reduces discrepancies. 

Train Staff

Human error can contribute a great deal to inventory discrepancies, so it’s critical to train staff to handle goods, record transactions, and audit inventory. However, that can be difficult if you primarily work with seasonal employees, which is another good reason to offload warehousing to a professional logistics company. 

Secure Inventory 

Robust security measures can minimize theft, which contributes to inventory shrinkage. Often, theft is a less prominent factor in that calculation, but it’s still important to assess its impact. 

Professionalize Warehousing

If you’re still storing in a basement, an apartment, or a corner of an old warehouse that belongs to someone else, you’re going to lose inventory. As you scale, professional warehousing becomes an asset, so look into 3PLs that can provide these services with economies of scale. That includes: 

• Standardized bins and pallets to streamline sorting, counting, tracking, and pick and pack
• Streamlined warehouse workflows
• Optimized warehouse routes 

Work With a Fulfillment Partner 

Unless you’re a professional logistics company, you won’t have the infrastructure or in-house expertise to build comprehensive logistics (including warehousing). When you outsource to a fulfillment partner, you enjoy professional services that often bring reduced costs, negotiated rates with shipping carriers, and software included as part of the service.

Inventory Software Solutions

An inventory management system, like iDrive Logistics’ TWMS, or an ERP helps businesses accurately forecast order demands and optimize their picking, packing, and shipping processes, thus saving time and avoiding errors. For businesses with multiple locations, inventory accuracy is also crucial to prevent over- and under-ordering, and an inventory management system can provide visibility into stock levels at each location.

A software solution produces a single view of inventory across all platforms and channels that reveals what’s in your warehouses and where. You want that at a SKU level as well so you can pinpoint exactly where each SKU is in your warehouse and then manually audit that on demand. Combining that with automatic scanning of inventory into and out of your warehouse via transportation management will also produce efficiencies by slashing manual data entry. 

High inventory accuracy is essential for the smooth functioning of warehouse operations and ensuring customer satisfaction. Reliable records provide valuable insights into business demands, save time by eliminating the need for manual recounts, and increase visibility for informed decision-making.

How Often to Conduct Inventory Counts

Your frequency of inventory counts will depend on your business size and inventory turnover rate. However, cycle counts should be ongoing, wherein you count small stock segments as a continuous process during downtime and slow periods. Annual physical counts should also be scheduled. However, high-turnover items may benefit from monthly, weekly, or even daily counts depending on their value and rate of normal discrepancies. 

What Is a Good Inventory Accuracy Rate? 

Average inventory accuracy among businesses sits at just 65%. Increasing that rate to 93% would actually improve gross sales by 9% due to preventing stockouts and order conflicts. For reference, according to Jim Fleming of the Institute for Supply Management, a 90% inventory accuracy is considered good, and 95% is world class.You’ll always have some degree of error, but the smaller the margin, the lower the chances of a discrepancy. 

Next Steps

By prioritizing inventory accuracy, eCommerce sellers can optimize their management processes, slash discrepancies, and enhance their overall operational efficiency and profitability. iDrive Logistics’ TWMS can help your business strengthen its inventory accuracy with a comprehensive overview of stock in your warehouse, supply chain, and transit, so maintaining inventory precision is easier than ever. Contact us to learn more about our all-encompassing solution.