What are the causes of discrepancies in inventory stock management and what are the steps to be taken during investigation of stock management?
Discrepencies in inventory stock management refers to situations in which actual warehouse inventory or in-store inventory differs from the records of those inventories: When the expectation based on records for inventory doesn't match the actual counts in inventory, there is a discrepency. These discrpencies must be reconciled (analysed, explained and accounted for). There are some standard steps to be taken during investigation in stock management that are designed to attack inventory stock discrepancies.
Steven Bragg in "Inventory Management: How Do I Reconcile Inventory?" and Jaime Marulanda in "How to Attack Discrepancies in your Inventory" agree that a key step in stock management is to incorporate cycle counts, usually scheduled during cyclical periods of slow business or production, so that annual inventory counts have fewer discrepancies and are therefore easier to reconcile and stock is easier to manage efficiently.
Bragg gives a detailed list of steps to be taken during investigation to resolve stock discrepancies. The first step to take in the investigation when a stock discrepancy shows up is to do a recount. Someone different from the first person should do the recount to protect against the same count error reoccurring. The next steps, according to Bragg, are:
- match the correct units of measure: this ensures stock is being recorded and counted in the same units such as "eaches" or "dozens."
- verify part numbers: part numbers may be missing altogether and guessed at or they may be misread during counting.
- find missing paperwork: transactions may not be up-to-date because a transaction may have occurred that wasn't recorded yet or receipts or issuances may not have been entered correctly.
- confirm ownership: customers may own materials being worked on or materials put on consignment, thus the company won't have ownership or inventory record.
The last step is to accept the variance between the stock and the stock record if the steps in the investigation still turn up no explanation for the discrepancy in stock management.
"you cannot leave a variance; when in doubt, the physical count is correct." (Bragg)
There can be several causes of discrepancies in inventory stock management. A discrepancy in inventory stock is when the actual stock in a warehouse of a retail store does not match the recorded inventory stock count. For instance, if a Borders Bookstore inventory stock record indicates that there ought to be 20 copies of Dan Brown's The Da Vinci Code but the on-shelf inventory stock has a count of only 17, there is a discrepancy in inventory stock management.
Such discrepancies, whether in warehouse or retail store inventory stock, can show a deficit (too few) or a surplus (too many) and are typically caused by a variety of things:
- shoplifting (removal by customer without payment) (deficit)
- pilfering (removal by employee without payment) (deficit)
- transactions not yet or not correctly recorded (deficit)
- items on consignment not owned by the business (surplus)
- error in size of units (e.g., recorded in "dozens" but counted in "eaches")
- mislaid goods (i.e., stored in second location or stored in an incorrect location)
- misread or missing parts numbers
Steps taken during investigation--before the discrepancy and failure to reconcile the counts is accepted--are to:
- recount with a different person performing the second count
- verify outstanding transactions
- track down incorrectly recorded transactions
- identify consignment items
- confirm and reconcile the size of units so units are consistent
- track down second storage locations
- isolate incorrectly stored items and restore them to their correct storage
- verify part number or locate missing part numbers