Stock Take Discrepancies: Causes & Preventions
An inventory discrepancy happens when the actual on-hand inventory stock is different from the item quantity recorded in an inventory system. Discrepancies are not uncommon and can have a substantially negative impact on any business operation. Undetected stock discrepancies can result in lost sales, overstocking and poor customer service.
What Are Stock Discrepancies?
Stock discrepancies happen when the actual quantity of inventory stock on hand is different from the quantity recorded in an inventory system for any particular item. This is a challenge faced by nearly all businesses managing inventory. If not avoided or detected, discrepancies will bring about various damaging results such as loss of sales, build-up of stocks and customer dissatisfaction.
Most causes of stocktake discrepancies can be due to human or procedural errors or faults.
Frequent Causes of Inventory Discrepancy
Most inventory discrepancies are caused by human error or flaws in inventory control procedures. They can vary from shrinkage through to theft, misplaced stock, to simply placing inventory stock in the wrong location.
1. Inventory shrinkage
Shrinkage, a leading cause of discrepancy in your inventory stock, accounts for, on average, over 1% total retail sales. Shrinkage occurs through such means as clerical errors, shoplifting, employee theft and supplier fraud.
2. Misplaced inventory
Misplaced inventory occurs when items are receipted into stock and then placed in the wrong aisle, shelf or bin. It is also caused by customers picking up products and placing them in a different location.
3. Human error
Human error can account for a variety of discrepancies at any point along the supply chain and is a major contributor to discrepancies in inventory counts. From errors in physical counting to scanning errors and mistakes in picking and placement.
Human error during the stocktake process and order processing (e.g., picking) is common. An incorrect unit of measurement in counting can also lead to discrepancies.
One of the easiest ways to minimise human errors is to provide adequate staff training. You could also simplify processes and clarify stock locations, making sure they are marked clearly, are easy to access, and the locations are kept well organised and properly maintained.
4. Mismanaged returns
Another area where inventory discrepancy can originate is through mismanaged returns. When returned products are coded incorrectly and placed back into inventory stock, you get an inaccurate record of the return. Effective inventory control helps facilitate smoother product returns, and proper employee training is necessary to ensure accurate codes are being applied before placing products back into stock.
Additional Causes of Stock Discrepancies
- Incorrect data recorded during receiving/inbound stock
- Inadequate handling of damaged and returned stocks
- Stock loss due to theft
- Not updating the inventory system
- Stocks incorrectly labelled
- Stocks mistaken for a similar product and mixing
- Supplier fraud
- Faulty inventory management software or stocktake equipment
Checking for stocktaking discrepancies
Performing regular stocktaking is a good practice and crucial to effective inventory control. It lets you know exactly what inventory stock you have on hand, helps to identify issues and can improve operational efficiency and reporting accuracy.
Conducting physical stocktaking is the most reliable method for revealing discrepancies between inventory records and the actual stock you have on hand. The most efficient way to resolve any stocktaking inconsistencies is by using a checklist to determine and remedy discrepancies in inventory numbers. Checklists should address the following:
Recount the stock
This is the first step if the numbers don’t match up. A simple mistake during the original count can easily be rectified with a product recount.
Stock location
Check to ensure stock is not in the wrong location. It may not be missing, just in the wrong bin or in another area of the storeroom altogether.
Though similar stock should be together, there is still the possibility that warehouse staff have mistakenly placed the stock somewhere else.
Unit measures
Have the correct units of measurement been used? Make sure units are recorded as they have been received: individual units, by box, weight, length or litre. Establish a measurement and stick with it.
Ideally, staff should be trained on the procedure. However, there is still a chance that someone may have counted in different units of measurement, for example, litres or pounds, instead of boxes or individual units.
Descriptions
Make sure the description in your inventory records actually matches the product being counted. A common error in stocktaking is when staff mistakenly count items with a different identification number or a similar product that has a variation in size or colour.
It’s not unheard of for products to be labelled with the incorrect SKU, thus upsetting your inventory records.
Inwards & outwards stock
Inwards & outwards stock
Confirm that all sales have been accounted for and entered into your inventory stocktaking software. Ensure orders from suppliers have been delivered and entered into stock. Watch our inventory software demo to learn more.
There may have been outstanding orders that were invoiced but not picked yet, so use your inventory management software to identify any outstanding orders.
Inspect for mixed products
Maybe one product has been mixed in with others. This can occur, especially if products or packaging are similar to each other.
Regardless of whether or not you can determine the cause of stock discrepancies, it is important to update your inventory records to reflect the results of your physical count. Whatever the records say, it is the physical, on-hand inventory that matters.
Preventing Future Discrepancies
To help avoid stocktake discrepancies in the future, understanding their typical causes is the first step. Otherwise, you risk not addressing core reasons for discrepancies in the first place, and the problems will continue, creating a myriad of further complications when coming to reconciling accounts at the end of the year.
According to Global Payment, around 1 in 4 retailers only realise they’re out of stock when a customer tries to order. In order to stay on top of accurate inventory stock levels and avoid stockouts, overstocks, and discrepancies, you need to use an inventory management system that allows for enhanced inventory visibility and control of each and every product.
Implementing an inventory management system, such as Unleashed, into your operations will help to eliminate poor inventory control practices, provide enhanced visibility of real-time inventory levels, SKU management and cycle counting. This enables you to have a correct view of inventory levels going forward.
Not having the right inventory management solution in place could be the biggest cause of all. Try Unleashed, free for 14 days, and see what an inventory management system can do.
Frequently Asked Questions
What types of discrepancies can be identified post stocktake?
Post-stocktake discrepancies occur when the actual physical inventory count does not match the recorded quantity in your inventory system. Common types include:
- Inventory shrinkage (loss due to theft, fraud, or clerical errors)
- Misplaced inventory (items stored in the wrong location)
- Human error (incorrect counting, scanning mistakes, or wrong units of measurement)
- Mismanaged returns (returned items incorrectly coded or placed back into stock)
Additional causes can include incorrect data entry during receiving, damaged stock not recorded properly, supplier fraud, and mixed or mislabelled products.
What are the four types of discrepancies?
The guide highlights four major types:
1. Inventory shrinkage – Loss through theft, fraud, or clerical mistakes.
2. Misplaced inventory – Items stored in incorrect locations.
3. Human error – Mistakes during counting, scanning, or order processing.
4. Mismanaged returns – Returned products were incorrectly processed and recorded.
How do you handle discrepancies in inventory?
The recommended steps include:
- Recount the stock to confirm the initial count was accurate.
- Check stock locations to ensure items aren’t misplaced.
- Verify units of measurement to avoid inconsistencies.
- Match descriptions and SKUs to prevent counting similar but incorrect items.
- Confirm inwards and outwards stock movements in your inventory system.
- Inspect for mixed products that may have been stored together.
Finally, update your inventory records to reflect the physical count, as the on-hand stock is what matters. For long-term prevention, implement an inventory management system like Unleashed to improve visibility, automate processes, and reduce human error.
