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Best Practices for Inventory Accuracy

How to Build a Better Business with a Better Approach to Inventory

Like many, you may run when you hear the words inventory and accuracy said in the same sentence. Or you may tremble at the slightest mention of the dreaded physical inventory count.

You are not alone. Maybe you’re worried about theft, maybe you know you have weak internal controls but don’t want to address it, maybe you always intend to enter the purchase orders but run out of time.

We’ve all been there. There’s a lot going on for your small business and sometimes you place inventory accuracy as a low priority. But the sad truth is, it can’t be ignored.

How complicated is your inventory? Following a few simple best practices can make it less of a headache and more of a boon for your business.

First, know your rules (and when you can break them)

You should start with a set of procedures that employees learn in their training. A concrete process that doesn’t change without a full team meeting. 

The exact procedures may vary based on the type of inventory you have and the inventory tracking system you use. But the overall theme is the same – when something changes in your inventory position, you have to account for it. If you get a shipment of inventory, you need to record the addition of inventory. If you sell something, you need to record the inventory leaving your store. If you do a routine inventory count and you should have 10 but you have 8, you need to record the variance. Every bike retailer’s favorite game, right?

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Once you have rules, you can have exceptions

I’ve seen companies that disregard the inventory management rules constantly, but because the employees all know the system, they know how to make exceptions. A company running with no rules or procedures is just a mess. But a company that knows their rules can break them.

Let me explain. You get a shipment of 12 widgets but don’t have time to check them in before you leave your shift. A customer wants to buy one of the new widgets, but they aren’t in the computer when Employee A goes to ring them up. Employee A knows that if this happens, page 10 in the handbook tells her what to do. She follows the rules and all is well.

If you didn’t have rules, Employee A would have tried to sell the widget and created a mess of inventory resulting in a possible loss at the next inventory count.

Prepare for the physical inventory count

Physical inventory counts are grueling. There are scanners that make them easier and even companies you can hire to perform the count. But there is always work to be done in preparation.

Organize your stockroom shelves so like products are together. Make sure you’ve adjusted out any damages. Fix your inventory issues before the count begins. Remember, it’s a count – not an audit.

How to have a better physical inventory count

Encourage employees to work efficiently but carefully. It is not a race, though sometimes employees are tired and want to finish to go home. Celebrate good work with a company party. But be careful about tying any sort of bonus to an accurate inventory – it’s easy to give false numbers to look better.

Create an Environment that Cares

Many companies have a culture of negligence. What I mean by that is some companies don’t show their employees that each detail matters. If you say to your employee, “It’s okay. Don’t worry about that little inventory discrepancy,” they will think it doesn’t matter. You want to keep your team believing in accuracy precision – otherwise, many small oversights can lead to a much bigger issue.

By creating and enforcing good inventory procedures, you will make great strides towards a more accurate inventory. Need help elsewhere? If you’re a member of one of the 100+ industry organizations, alliances, cooperatives, and trade groups that our business consultants work with – Savings4Members can help.

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