Definition of Inventory Discrepancy
Inventory discrepancy refers to the error that occurs when the inventory record of a business’ warehouse management system is different from what is actually on the shelf in the warehouse. Inventory discrepancies have a considerable impact on profit margins and customer experience thus businesses should optimize their processes to avoid them at all costs.
Main Causes of Inventory Discrepancies
1. Outdated Technology
Outdated technology is often the major reason for such errors. Obsolete inventory management systems will do more harm than good in eliminating such errors. As a consequence, a plethora of companies tends to invest in updating their inventory management solutions to improve their processes and transform their businesses in the competitive contemporary digital world.
2. Inventory Loss and Theft
Insufficient implementation of effective inventory management systems within a business can lead to the inadvertent loss of inventory. Instances of misplaced inventory may occur when items aren’t monitored and recorded in stock after arriving at the warehouse.
On the other hand, inventory theft stands as an unfortunate event contributing to inventory shrinkage denoting the loss of inventory subsequent to its reception, documentation, and placement on shelves.
3. Damaged Inventory
Incorrect handling of inventory can be the reason for damaged goods thereby contributing to inventory shrinkage. For instance, when a product is damaged, it may not be sellable or usable resulting in a loss of value. This means that the actual value of the inventory is less than what was originally recorded leading to discrepancies in inventory levels and value.
4. Insufficient Physical Counts
One of the most effective methods of accurately monitoring stock usage is through the implementation of maintenance checks. However, counting physical inventory is not a simple task. Consistently tracking inventory, conducting quality checks, and regularly performing cycle counts are all crucial elements for assessing the precision of inventory data.