How often should you audit inventory to ensure accuracy?

True, inventory auditing is mandatory to synchronize the physical and digital part of the storage and throughput management. Inaccurate matches can lead to losses not just in counts but also with expiration, damage and pilferage. Ignoring this activity is a risk in warehouse management. The next question is when and how frequently this should be done, without disrupting the overall operations, either at a single company owned facility or at a third part logistics provider. This depends on the scale of operations in terms of volume, business activity, throughput and its impact on daily operations. The task needs manpower, equipment, systems and seamless coordination to complete. Hence it has to be planned at regular time intervals.

The tendency to focus on high value items is a financial one. From an operations perspective the smallest fastener or seal can stop a customer job. Whether the point of departure is financial or operational, cycle counting is an absolute necessity. But even more important is to analyse, understand and correct causal factors to drive consistent inventory accuracy.

On daily basis, random articles/barcodes audit must be done to ensure the inventory accuracy. This practice is going to lead you the audit of almost every item after a specific period.

We need to remember Pareto's Rule. But we have to apply it carefully. At a surface level, inaccurate stock levels of very cheap items may not be important, but cheap items can be important: I once had a customer who couldn't ship a $70k item because they were short of the $0.50 bolts to attach it to the skid that was going to carry it to its destination.

A 100 % inventory accuracy is not achieved by frequent inventory audits - it requires to put an entire inventory eco-system in place. There should be processes in place to ensure that inventory accuracy will be maintained at a very high level. a) comparing physical received quantities with quantities on electronic or paper deliver notes b) implementing put-away checks c) performing empty-location checks d) planning reasonable cycle count activities e) counting remaining quantities after picking f) random checks after picking, packing etc. g) weighing packages on electronic scales and comparing weights with the added weight of the goods from Masterdata (ideally having Masterdata for the packaging material as well.

This is an on going process. Must be cover through cycle count on daily and weekly basis. Specially ensuring received and issued material's balances on each transaction. If your inventory is huge, cycle count must be performed category wise by dividing in such a way that your total inventory must be audited twice in a year at least . If your inventory is niche, physical count may be performed on every month's closing.

Inventory auditing is crucial as it ensures accurate financial reporting and helps identify and address issues like theft, errors, or inefficiencies in inventory management, supporting better decision-making and cost control.

To maintain inventory accuracy, spot causes of shrinkage, and ensure that you always have the right amount of stock at the right time.

An inventory audit, particularly the physical count part of the process, can help teams ensure appropriate inventory levels, identify inefficiencies and budget more accurately. It can also help identify more nefarious activities, like theft, as well as damaged or forgotten goods.

Discrepancies found and resolved in real time. It can prevent customer issues like if item found short, it’s adjusted in system before pick ticket placed against purchase order instead of asking customer service to revise ticket and contact customer that it turns out warehouse doesn’t have it in stock. Basically inventory auditing is not only good practice for warehouse mgmt but also customer relations.

Cycle count should be a part of daily operations. Should be managed during off peak hours, when operations are low. If a WMS is being used then locations should also be verified and corrected as needed. The key is to keep track of variances and adjust them periodically. Priority should be given either to fast moving items or items which make up 80% of inventory value. As per 80-20 rule 20% of items normally account for 80% of the inventory value.

Cycle count is a part of your daily operations. To begin, you categorize inventory to ABC and then plan your daily counting accordingly. Best practice, A items - 12 times a year, B - 8 times and C - 4 times, subject to availability of resources and type of operations. For complete inventory audit in one go, it should be atleast once in a year.

Inventory audits ideally should be done as often as you need to. Once a desired KPI has been set, then conduct cycle counting on a frequency that allows you to hit that desired KPI. You count more when you cannot achieve your KPI, and you can count less if you have a mature and stable team that consistently hits the KPI. You can start with an annualized cycle count, but probably a quarterly cycle count would catch issues more quickly, and have monthly counts for high value or A items. Its a balance of resource availability versus inventory accuracy. Some companies may set an acceptable shrinkage rate based on their accounting policies. Of course ideally, we should be 100% accurate, but human errors will always exist.

I have found in my career the ABC method is great for the Accounting Group but not great for Manufacturing. Even the lowest priced item can stop your Production in it's tracks. When you are making an upper level assembly everything is an A or Critical item. Cycle count by location, make your daily counting area large enough to allow you to count your whole warehouse 3 times a year. Do you count after you have had a clean cut off transaction wise. Close off the area you are counting. 98% accuracy in a location is a "hit", zeros are considered a count . Total hits over total counts. Your goal is 95%+ regardless of value. Normal CC rules apply for $$. At 95%+ for Production , Financial will hit about 98%+, this method does not fail.

The frequency of inventory audits varies by industry and company size, but it's common to conduct them annually for comprehensive validation and periodically, such as quarterly or monthly, for ongoing accuracy and control.

Auditing your inventory is a process that nobody enjoys but is crucial to for the business. You need to put measure in place to audit your inventory and not depend solely on reports from your WMS. Data entry errors, receiving errors, and employee theft can all affect your inventory and are reasons you should not depend on WMS reports. Annual Physical Inventory, Cycle Count, Spot Checks, and audit of Real Time Imputing (RTI) are types of audits to be used.

Depending on system available at your company, the type of auditing can vary. If advanced you can daily cycle count based on fast moving and/or value. You can also simply just go in order. During full shutdown/ inventory, all should be counted and recounted if discrepancies are found. If not advanced system, I’ve manually printed out small quantity items/ locations/ lots for daily counters to count and report accuracy.

A Blend of different types of audits ensures the best results. In addition to audits, the inventory teams' better understanding of packaging and UOMs improves inventory accuracy. For a company to weigh the effectiveness of its auditing process, it's advisable to maintain an inventory record accuracy tracker to showcase how closely system stocks match with physical stock.

Cyclecount should be a part an integral part of warehouse management processes to measure of effectiveness.For example – Less accuracy in cyclecount may indicate flaws in the putaway and picking strategy in place or manual errors . Cyclecount is a great tool to identify the manual errors and evaluate the training need for them and come up with an improvement plan. Cycle count planning is based on ABC analysis and the current stock accuracy of that warehouse. I strongly believe what ever get measured it will get improved when complimented by a rootcasue analysis and well-defined action plan.

Physical inventory count, Reconciling items, Analytical procedures, Match invoices to shipping log etc. For retail inventory audit, Physical inventory count should be done very often.

Inventory mgmt is very important so best practice if possible considering man power is daily cycle counts with real time resolving (short, over, lot#, etc) to maintain accuracy inventory.

I would like to suggest the requirements of ISO 9001:2015 for performing the internal audits as they are specific to the audits and can be used for this as well.

I believe it all depends on the kind of products and how fast they move from stock. For example if i am dealing with automobile or heavy machinery spare part stock, we have those spare parts that are fast moving and those that are slow moving. Vetting or auditing could be done two to three times every month. this will advise me on how often my stock moves and when to replace stock. Also my lead time also will advise on how fast the stock would be replenished. Seasons is also another factor. During the raining seasons, more spare parts move faster that the other seasons

Doing analytical procedures during inventory audits involves comparing gross margins, inventory turnover ratio, and/or unit costs of inventory with previous years. This helps you understand trends so you can be better informed during inventory procurement and when you're forecasting demand.

In the context of inventory management, effective practices include regular and planned audits to ensure accuracy and compliance. Clear communication of audit schedules and protocols to warehouse staff and stakeholders is crucial. Training staff in the necessary tools and procedures, like using barcode scanners and inventory management software, enhances the efficiency of audits. Establishing and adhering to consistent inventory audit standards and policies is also vital. Regularly reviewing and analyzing audit results can help identify areas for improvement, ensuring continuous enhancement of inventory management processes.

The stock count should happen continuously, means every day when operations run, yet you need to focus on the most rotating and valuable items with higher frequency and the less rotating and less valuable with lower frequency. However, if you want to ensure your inventory high accuracy the most important point is not how offen you count but what you do with the results. If you think, that correcting the numbers in your system to match physical invetory is just enough, then you will continue to waste your resources on counting and correcting but accuracy would not increase. You must focus on understanding what happen, that the physical inventory don't match with the system and then address it with the proper actions.Improve while counting.

Some of the biggest issues with cycle counting / perpetual inventory that I have experienced come from the timing of the count and the investigation. In busy warehouses, it is important to count at a time when the system figures are as close to actual count figures as possible. Counting stock in the middle of putaway, when your WMS is not updated, is a sure-fire way to generate re-counts and additional work. It is often a good idea to check when system updates occur or housekeeping tasks run in your systems to avoid timing disparities between actual stock you can count and what your system is expecting to find!

Know of an incident at a large metallurgical company which processed scrap into ingots. The heterogenous scrap came from multiple sources. There were melting losses during the conversion processes. The company used thumb rules and conversion factors for accounting of processed scrap based on the ingot weights. Physical audits were deferred due to production/ demand pressures. Finally when the audit was carried-out, there was a shortage of metal running into hundreds of tonnes. The incident resulted in embarrassment for the company with huge commercial and tax liability. No company should ever find itself in such a situation.

At least twice a month, One at the closing & Opening of period (Month) and one at the mid of month (half way passed). Regular stock audit at the closing of each quarter (taking transits throughout the quarter) will ensure the accuracy to further extent.

Keep it safe -> Limit access to the warehouse and maintain a high-security area as needed. Remain orderly -> Everything should have a place, and that place should always be maintained. Labels should be placed everywhere and should be clearly visible. Use space configurations and containers that make counting simple. React to items A, B, and C in accordance with their classification. A goods need more stringent security and reordering measures. Both losing them and running out of them are things you don't want to happen. Use technology to your advantage -> You may maintain tight control over all inventory movements within and outside of the warehouse with the use of bar codes/RFID, readers, and immediate electronic communication.