October 26, 2018      3 min read

Optimum inventory control requires specific job skills and a certain amount of strategic planning. A good understanding of common mistakes in inventory management will help avoid inventory discrepancies, reduce costs and improve responsiveness to fluctuating consumer demand.

Responsibility for inventory management should be assigned to a person employed or trained in inventory control. However, all staff should be trained and familiar with the company’s inventory system.

Causes of inventory discrepancies

The best way to manage inventory discrepancies is to try to avoid them happening in the first place. To achieve this, business owners need to have a good understanding of their typical causes. The common causes of inventory discrepancies include:

  • Human error during order processing or when undertaking stock take activities, including errors in counting and calculating stock balances, clerical errors and incorrect data entry during the issue and receipt of stock.
  • Discrepancies due to incorrect weighing of inventory stock or using inaccurate units of measurement for products and materials.
  • Stock that has been misplaced after it has been received. Misplaced inventory typically occurs when items are incorrectly labelled, mixed in with or mistaken for similar products and placed in the wrong location, bin number or storage area.
  • Material waste due to pilferage and theft, spoilage, evaporation and material handling and appropriate storage of perishable items. Exacerbated by poor handling of damaged and returned stock items with product returns not properly recorded.
  • Suppliers sending a different quantity of materials than that stated on the dispatch record.
  • Failure to update and maintain an accurate inventory control system.

Avoiding inventory discrepancies

Once the causes of inventory discrepancies have been identified it is important to put processes and checks in place to avoid inconsistencies. Activities to reduce inventory discrepancies and improve overall inventory control include:

  • Train staff well to ensure practices and processes are executed effectively.
  • Ensure that the unit of measurements used are consistent across physical and recorded stock and that these a clearly stated in procedures and on location labels.
  • Maintain accurate records of all inventory stock with its corresponding location and place similar stock together such as items of the same style and design but in varying sizes, these should be stored in the same location.
  • Make sure locations are marked clearly and are easy to get to. Have clear boundaries to differentiate between different products in the same area.
  • Record all stock movements, whether the item is sold, used as sample stock or a donation, the inventory system must be updated accordingly. This should also be done for returned items acceptable for resale or mislabelled products and relocated items.
  • Restrict the entry into the warehouses and storage locations to authorised personnel only. Ensure that staff are familiar with storage and temperature control requirements of perishable stock items.
  • Verify that the goods received match packing slip quantities. Count products as they arrive and if it is impractical to individually count items due to large deliveries, count random boxes or palettes. Some transportation companies ship inventory by weight, so it may be possible to freight and shipping dockets to verify you are getting the quantity stated.
  • Maintain an accurate inventory control system. Invest in inventory management software and tools to help optimise inventory operations.

Further steps you can take to avoid inventory discrepancies in both physical and recorded inventory stock are regularly reviewing what you are doing to identify areas where improvements can be made, having a regular stock take and arrange checks by independent staff to find and correct mistakes.

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