INVENTORY RECORD ACCURACY (IRA)

INVENTORY RECORD ACCURACY (IRA)

Inventory Record Accuracy (IRA) is a measure of how closely official inventory records
match the physical inventory.

Why Is It Important? The reasons for having accurate records are many:

Financial Reasons:

Investors want to know that the book value is accurate.

Lenders who loan money with inventory as collateral want to protect their loan.

Taxation often depends on inventory value. Overpayment of taxes reduces profits and
underpayment can incur severe penalties.

Poor accuracy begets more inventory and requires more capital. Inventory is often the
largest consumer of capital for an enterprise.

Operational Reasons:

Stockouts interrupt production and create delivery delays.

People waste hours looking for misplaced or missing items.

When stockouts are frequent, inventory rises in an attempt to compensate. This

unnecessary inventory requires space and capital.

Stockouts increase cost in a hundred ways and sap the time and energy of everyone. .

MOST COMMON REASONS WHY BUSINESS OWNERS SEE DISCREPANCIES IN THEIR

STOCKTAKE NUMBERS

Discrepancies are usually due to:

Process Related Errors

Absolom Mukonyo, MBA. BBA, DipEd, Passport to Procurement 2017:

Email: amukonyo@gmail.com
Telephone: +267 3184979/5
Mobiles: +267 71420500 & +267 73764917
INVENTORY RECORD ACCURACY (IRA)

Each step in a transaction process introduces some probability for error, even if that
probability is small. To reduce process-related errors, we must change the process.

Volume-Related Errors

Every transaction process has an inherent error rate resulting from the process. Over time,
and with many transactions, the number of new errors per week or per thousand
transactions is relatively constant, if the process remains unchanged. The more
transactions, the more errors. If transaction volume is reduced through kanban,
backflushing, Cellular Manufacturing or other simplification, errors drop proportionately.

Whether process related or volume related discrepancies could be due to:

1. Stock loss due to damage,

2. Stock is in the incorrect location, that is wrong placement of stock or stock mislaid
3. Human error during stocktake process, that is miscounting, sometimes even by
suppliers or last time not correct count done or last inventory adjustment done
wrong
4. Stock loss due to theft or removal
5. Stock is labelled with incorrect identification
6. Stock mistaken for similar product
7. Inbound stock not recorded accurately
8. Faulty inventory management software or stocktake equipment that is sometime by
some system error also inventory wrong in system/books
9. Incorrect unit of measurement was counted that error in size of units that is
physical inventory received (a) something else but in system some other product
(b)
10. Stock obsolescence/expired/outdated- that is non-compliant stock and not
recorded
11. Document misplacement is common and must be eliminated
12. Late or delayed updating or recording of inventory stock - transactions not yet or
not correctly recorded

Absolom Mukonyo, MBA. BBA, DipEd, Passport to Procurement 2017:

Email: amukonyo@gmail.com
Telephone: +267 3184979/5
Mobiles: +267 71420500 & +267 73764917
INVENTORY RECORD ACCURACY (IRA)

13. Misplacement of customer invoice before delivery resulting in no delivery

14. Confirmed order but not yet picked and or loaded
15. Customer returning stock (reverse logistics) and not being credited or physical
inventory received but in system not received, pending due to some reason
16. items on consignment not owned by the business (surplus)

RESOLVING YOUR STOCKTAKE DISCREPANCIES

When resolving these discrepancies it is critical to consider each reason and match it with
its appropriate solution

Two methods for Improving Accuracy:

To improve inventory record accuracy, reduce the error creation rate (i.e. errors per week,
month, etc.). Every attempt must be made to reduce error rate.

To increase accuracy, decrease errors flowing in or increase the removal rate.

Methods to improve accuracy include;

1. Cycle Counting,
2. Physical Inventory,
3. Transaction Reduction a
4. Process Improvement.

An optimal approach may combine them all.

Cycle Counting

A small number of items are physically counted, daily, on a random or semi-random basis.
The physical count is compared to the inventory record. When necessary, the records are
corrected.

Process Improvement
Absolom Mukonyo, MBA. BBA, DipEd, Passport to Procurement 2017:
Email: amukonyo@gmail.com
Telephone: +267 3184979/5
Mobiles: +267 71420500 & +267 73764917
INVENTORY RECORD ACCURACY (IRA)

Process Improvement examines the transaction processes. Changes are identified that
reduce the probability of error.

Transaction Reduction

An effective way to reduce errors is to reduce the number of transactions. Fewer

transactions introduce fewer errors. Kanban, BOM simplification, cellular manufacturing
and other elements of Lean make this feasible.

RESOLVING YOUR STOCKTAKE DISCREPANCIES: A CHECKLIST

Re-count the stock in question. This should be your first step if numbers arent
matching up. It could be something as simple as a mistake during the original
counting process
Check if the stock exists in another location. If a large number of items appear to
be missing, double check that they arent in another part of your storeroom, or maybe
a different storeroom altogether. Theres even the chance that youve purchased the
stock but it has not yet arrived from your supplier
Make sure the correct unit of measurement was used. Ideally, all people
participating in the count should be trained on the procedure. However, there is still a
chance that someone may have counted in litres or pounds, instead of boxes or
individual units
Verify that the SKU or product identification number is correct. Though
uncommon, its not unheard of for products to be labelled with the incorrect SKU, thus
upsetting your inventory records. Check that the description in your inventory
management system actually matches the product youre counting. If it doesnt, youve
found your problem
Ensure the product has not been mistaken for a similar product. This is a
common error in stocktakes when counting staff may not realise that a variation in
size or colour is technically a different product with different identification

Absolom Mukonyo, MBA. BBA, DipEd, Passport to Procurement 2017:

Email: amukonyo@gmail.com
Telephone: +267 3184979/5
Mobiles: +267 71420500 & +267 73764917
INVENTORY RECORD ACCURACY (IRA)

Scan your inventory records for errors. Sometimes a discrepancy can come down
to a simple mathematical error
Confirm that there is no missing paperwork. Sales which have been unaccounted
for can often throw off your count. Go in search of any missing paperwork, which may
not have been entered into your system yet
Investigate whether employees or customers have been stealing stock. This is
one of the least pleasant steps to tackle, but its necessary if you cant find any other
logical reason for loss of stock. Consider implementing tighter security measures in
store, such as CCTV cameras or security tags on products.
Speak to your warehouse/storeroom managers. A slip up in the usual procedure
for processing stock may have occurred. Have a chat with your managers to see if
there are any kinks in the chain. If so, some staff may need retraining or your entire
procedure may need to be revised.

Updating your inventory levels - ALWAYS

Its important to update your inventory records to reflect the results of your physical count,
whether youve uncovered the reason for the discrepancy or not. This will allow you to
view the correct levels of stock going forward, which you can then use to alter your profit
margins and financial forecasts.

Generally, quickly:

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

Absolom Mukonyo, MBA. BBA, DipEd, Passport to Procurement 2017:

Email: amukonyo@gmail.com
Telephone: +267 3184979/5
Mobiles: +267 71420500 & +267 73764917