Inventory is something a business can physically count, so it is surprising when a situation occurs where the inventory count suggests a negative inventory balance or less than zero of a specific item.
In short, negative inventory is the gap between your actual on-hand inventory and the stock recorded in your inventory system.
Negative inventory can be concerning to a business owner who may believe they have committed more stock than they have on hand. However, it is a minor issue that generally coincides with misplaced stock.
A question of timing
Negative balances generally occur due to timing issues in the transfer of a product, the incorrect tracking of goods or taking of an order to sell goods before you physically have the inventory in stock
Other timing issues include checking a product out of stock after it is received at the warehouse but before it is entered in the inventory system. This can happen in manufacturing when produced materials are dispatched and recorded before the production transactions are recorded, particularly when a production run is still in progress.
Common causes of negative numbers
Although a surprisingly regular and temporary inventory condition, negative inventory can potentially lead to excess stock or missed opportunities. It is important therefore, to be aware of common causes of a negative inventory balance.
Location-based negative balances occur when multiple locations are used for the same item. Goods are shipped from one location but mistakenly recorded as issued from another location.
Item-based negative balances however, generally occur through transactional mistakes, duplicating transactions, over-reporting production or entering stock movements of the wrong item into the inventory management system.
This can lead to a surplus of one item and a negative number of the other. In manufacturing, an error like this can potentially interrupt production, if not recognised in time.
Other reasons why negative inventory appears on your inventory reports include; incorrectly reporting stock counts or having missing stock removed from the records, then the records not being updated when the items have been found.
Reducing the occurrence of negative inventory
Complications occur when a business fails to pick up on negative inventory, consequently relying on stock that is not actually there. Undertaking regular checks, or by using accurate real-time inventory systems, will usually identify an error before any real problems arise.
The use of barcode scanners and automated inventory systems will also help to reduce the risk of negative inventory.Topics: educational, inventory management software, negative balances, negative inventory, stock count