In today’s ultra-fast-moving retail landscape, finding the appropriate amount of time and resources to conduct a thorough inventory reconciliation can be challenging. In a real-time example, this means pulling employees away from their everyday tasks and asking them to do a lot of routine and mundane work. Nevertheless, maintaining accurate inventory documentation is vital to most companies’ business success.
Just consider the following examples and let it sink in how vital tight inventory control actually is. Several years ago, Target Canada found that the barcodes of their Barbie products didn’t match the numbers in their computer systems, leading to mismatching product counts on their shelves, consequently leading to empty store shelves and a $2 billion loss.
As you can see, inventory mismanagement can happen to everyone, from the largest, most sophisticated corporations to medium and small-sized businesses worldwide. So, if you’re in the retail sector, you already know how important it is to keep an accurate record of your constantly changing inventory.
Ensuring that your actual inventory aligns with your inventory recordings is vital to the success of your business, not only in terms of avoiding immediate financial losses but future losses as well. This is where inventory reconciliation enters the picture.
What Do We Mean When We Say Reconciliation Of Inventory?
In a nutshell, when we say reconciliation of inventory, we actually think of the act of taking the inventory of everything you have and ensuring that your stock records match reality. Every retail business must reconcile its inventory periodically to acknowledge if any discrepancies need to be addressed in time before it’s too late.
How To Do Inventory Reconciliation In Your Business?
In order to do a professional inventory reconciliation in your retail business, we recommend following our five-step process, which most successful companies use when conducting such an operation.
It All Starts With A Count
First and foremost, you and your employees should count the products you have on hand and compare your inventory records with the physical inventory. Most companies that work with thousands of products opt to do multiple counts throughout the year to reduce the error margins. Your inventory count should include noting the stock and serial numbers to match up with your records.
How you do your physical inventory count may differ, as the most common counting methodologies include full-count inventory and cycle counting. The first one includes your team or a third-party inventory company coming into your facility and counting each physical item you have all in one time period. While this methodology provides accurate accounting on all stock items, it requires shutting down your operations while conducted and can lead to errors in counts.
The second type of inventory count counts for specific tracking needs and is more accessible and less stressful to run. Finally, if you opt to do a cycle count, your workforce should count specific goods or areas of your facility daily and, over time, count your entire inventory in pieces.
Regardless of which method you choose, the initial step of each inventory reconciliation is to know the number of products you physically have on hand.
Checking Your Records
After counting your products, you should ensure that your inventory records are current. This includes having accurate and up-to-date sales and invoices documentation. Then, compare the inventory records with each item listed in stock. You definitely don’t want your return customers to order a product that you think you have in stock only to find out that it’s an inventory error on your side and see them walk away to another business because you failed to present them with factual information about the products you carry.
Like with the counting process, make sure to check and re-check the records you hold to verify their accuracy.
Inspect For Eventual Discrepancies
After you complete the first two phases of the inventory reconciliation, it’s time to compare the results and inspect for eventual discrepancies. In all likelihood, you will uncover some discrepancies, and once the audit is complete, it’s time to address them.
Most of them will be attributed to math errors or human errors. However, if that’s not the case, then you need to review your sales records and check for the possibility that some of the sales have not been recorded accurately.
Reconcile Your Inventory Records
Regardless of whether you track down discrepancies or not, you must then adhere to having an accurate inventory count. For that reason, now is the time to reconcile your inventory records and adjust them to match the actual physical count. Also, don’t forget to make notes for the changes for write-offs or updated financial reports.
Compare The Results With Previous Inventory Reconciliations
Last but not least, make sure to compare the results of your current inventory reconciliation with your previous ones. This step can help you acknowledge trends and patterns and indicate areas for further examination.
In the end, when the records don’t agree with your physical inventory, there’s an issue that needs to be resolved. For that reason, it’s crucial to know the importance of inventory reconciliation and perform it within your facility to know the efficiency of your inventory management efforts.