Definition of inventory reconciliation: formula and importanceAuthor : Mohammad Ali , Founder and CEO of Inventory Software Services
Published : Last Modified :
What is Inventory reconciliation?
Inventory reconciliation is a process to compare inventory count of the report with actual physical stock. Inventory reconciliation is an essential part of an inventory audit. To check inventory regularly, business owners are often checking real-time stock with inventory count company record. If the company record and real-time stock do not match, make an adjustment to accurate record. It's not only a process to accurate record, but it also an analysis of your business.
Inventory reconciliation formula :
Some business owners close their business door for few days and start their real-time physical stock counting. It's a harmful process for a business. In this process business owners lost some customers and benefits. It's also bad for the business reputation. So they are not often interested to do this. So, they have no idea about their real-time physical stock.
Some business owners are doing that at night by overpaying their employees. Every night they calculate their real-time physical stock of items and write in a paper. Next day they open sale and write in a paper. After finishing all the items, they compare with the real-time physical stock and company record and finally adjust their records. This process is effective for keep business reputation but costly. Because business owners have to extra pay or overtime pay. For this, many business owners are not interested to do it.
But what's the better solution?
To give you better solutions, Here I discuss some modern inventory reconciliation formulas:
The ABC formula:
In the ABC formula, There are three groups of products: A, B, and C. A consist of 20 percent products items according to sales performance, B is next 60 percent and C is bottom 20 percent. The logic of the ABC formula is to count top product items more frequently than the next one. Every workday, at the starting time of business or ending time of business, Start counting some items of products for your cycle counting inventory. It greatly helps you to be more accurate stock information.
The seasonal formula:
If you have seasonal products, you can count down more performing items of products in that period. In the summer season, It's no need to count winter season products again and again.
The arbitrary formula:
In the arbitrary formula, physical stock counting may start according to products stock room or shelf position or based on specific suppliers or any other indicators. You may start from a corner of your store and end up in another corner. After finishing all you can start again.
Why inventory reconciliation is important for a business:
Regularly inventory reconciliation have advantages. Here I discuss the key advantages of reconciling inventory.
For better services:
To ensure better services, reconciling inventory is an important part of a business. Without inventory reconciliation employees have only the records, they have not accurate data of real-time stock. So, for every time selling, they confused about the stock. First, they have to check real-time stock, then ensure sales. Possibly huge valuable hours are wasted due to inappropriate real-time stock information. It's also a cause for customer boringness. For that, you may lose your sales and also customers, Finally your benefits.
To find out administrative errors or mistakes:
After finished inventory reconciliation, there is maybe two result: physical stock count 100% match with the company record or don't an exact match. If the first one, you can ensure administrators have not any errors or mistakes.If the second one, you may have administrative errors or mistakes. Take a step to find out the problems. If you see any problem, want to resolve it. In needed, arrange training for developing employees skill. If can not find any problem in the administrative document, go to the next step.
To stop theft:
Shoplifting by customers and employees theft are the major two reason for the stock shortage. By inventory conciliation, you get a clear message of 100% accuracy or get awareness about theft. Take a step to be 100% sure, Is there any theft in your business, If any stop immediately.
Taking steps after inventory reconciliation:
After finishing your inventory reconciliation, If real-time physical stock 100% match with company record, that's good. No need to take any step. If not match you need to take some steps to find the problem. Here I discuss what you need to do :
Check your papers or management software record: Check your previous documents. If any problem found, take a step against the responsible employees. See, it's error or dishonesty. If dishonesty, give them resign latter instantly. If errors or mistakes, take a step for next time accuracy.
Set up security cameras or audit security cameras record:
If your business has not any security cameras, set up as soon as possible. If you have already set up security cameras, audit your previous document to find out shift lifting by customers, employee theft or another dishonest appairs. If you have not enough capacity for storage, take a step to increase the capacity of storage.
Pay more attention to audits:
Audit can reduce administrative errors or mistakes, can reduce shoplifting by customers, employee theft or other dishonesty. Without audit cannot find any problem. So what you solve?
Only increasing audits quantity is not enough, It's important to increase the quality of your audits. You may have some auditors to audit your business. Regularly arrange training to train them. Audit your auditor's performance. Remember in a supply chain management the most responsible person is the owner.
To solve the problem arrange a meeting with employees:
Sometimes employees have some more practical experience than you. They can give you some ways, may you ever thought. So call a meeting to solve the problem. Hear every opinion carefully and decide what's better to solve the problem. If need, take a advice from experienced businessmen or a good consultant.
Give them some guidelines from your experiences. In need, you may stick more than previously about your company's rules and regulations. Give more time to your business more than previous.
Setup management software:
If you have not any software management system, to manage your business documents the only way is a pen and papers, I recommend you use a good management software. The software management system reserves your information with high accuracy and it's also helpful for finding information. If can find any information within some seconds and can apply instant. But in a pen and papers documents, it's common to make many mistakes and it's not always possible to get the right information at the right time. For that, it's common to have the mistake in every part of your business documents.