Inventory Record Accuracy

Introduction
What Is Inventory Record ?
Inventory records are hard copy or electronic documents that reflect how much
and what kind of inventories a company has on hand, committed (allocated) to
work-in-process, and on order
What Is Inventory Record Accuracy?
Inventory Record Accuracy(IRA) is a measure of how closely official inventory
records match the physical inventory.
By keeping accurate and complete records of each transaction, we
know where and how much we have at every point in the process.

The importance of record accuracy

The Need For Accurate Inventory Records
Financial Planning
Marketing and Sales Planning

Financial Statements
Both internal parties (management) and external parties
(shareholders and tax authorities) are consumers of this
information.

know exactly what can be sold to customers.

The importance of record accuracy

The Need For Accurate Inventory Records
New Product Planning

Procurement Planning

Production Planning

timed to roughly coincide with projected depletion of the

old product inventory.
Knowing what inventory is on hand and on
order, to determine the quantity and schedule of
future procurements
allows a company to utilize its people and
production facilities more fully because
shortages can be predicted before materials are
physically staged
Inaccuracies can no longer be hidden by extra stockholding

The importance of record accuracy

Causes of inaccurate records
There are several known causes of inventory inaccuracy (Gruen & Corsten, 2007; Kang & Gershwin, 2007; Waller, Nachtmann,
& Hunter, 2006).

incorrectly manually adjusted by employees.

products can be stolen

damaged or spoiled products, when not recorded as such,

returned products that occasionally not accounted
a store can receive mis-shipments from the distribution center
cashier error

The importance of record accuracy

Kang and Gershwin (2005) note inaccuracies in 51% of the records used
by one retail firm and claim that the proportion of inaccurate records
ranges from 30% to 80% across stores,

In a 2007 study of warehouse management success factors, the Aberdeen Group

identified that the adoption of cycle counting was one of 5 characteristics
correlated most strongly with best-in-class performance.
2008 study conducted by the University of Chicago. Their research found
that a whopping 65% of the 370,000 inventory records they studied from 37
different retail stores contained errors.

Tolerances and Measures of Accuracy

questions that every manufacturer has to answer

1. What are we going to make?

2. What does it take to make it?
3. What do we have?
4. What do we have to get, and when?

Accuracy is not always absolute.

P/N
1
2
3
4
5
6
7
8
9
10
11
12
13

Physical Inventory Tolerance

count
record
(%)
94
95
96
97
98
99
100
101
102
103
104
105
106
1300

100
100
100
100
100
100
100
100
100
100
100
100
100
1300

2
5
5
2
2
2
0
0
5
2
5
5
0

Hit

Miss
X

X
X
X

X
X
X
X
X

X
X
X
X

Tolerances and Measures of Accuracy

Criteria for Setting Tolerances
Usage
Dollar value
Lead time
Level in the bill of material
Criticality
Method of handling
Combinations of the above

How to measure accuracy

P/N
1
2
3
4
5
6
7
8
9
10
11
12
13

Physical
count
94
95
96
97
98
99
100
101
102
103
104
105
106
1300

Inventory Tolerance Discrepancy

unit Discrepancy
Accuracy
value
record
(%)
%
cost ($)
100
100
100
100
100
100
100
100
100
100
100
100
100
1300

2
5
5
2
2
2
0
0
5
2
5
5
0

-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
8/13=0.615

0.94
0.95
0.96
0.97
0.98
0.99
1.00
0.99
0.98
0.97
0.96
0.95
0.94
0.97

10
2
6
13
8
14
7
17
16
6
13
9
2

-64
-11
-25
-40
-16
-14
0
17
31
17
50
43
11
0

Financial
measurements

Value discrepancy = Unit stock value* (Quantity on record - Quantity in stock)

An inventory record accuracy based on the dollar value is not recommended

How to measure accuracy

Tolerance (%)

No of item included Accuracy(%)

Exact

15

11

85

10

13

100

Class

Tolerance (%)

Accuracy
target

95

90

80

set targets that can be achieved in the next few months, and
then gradually tighten the targets.

Methods For Improving Accuracy

To improve inventory record accuracy,

the error creation rate must be less than
the error removal rate.

Methods For Improving Accuracy

Physical Inventory

In a physical inventory, normal operations cease while a physical count of

every item is conducted. The counts are compared to inventory records and,
when necessary, the records are corrected.
if you were to perform annual inventory checks, then
you will find errors, but would have no idea whether
errors occurred a week ago or eleven months ago

Methods For Improving Accuracy

Cycle counting
Cycle counting is a proven method to monitor and check inventory accuracy on a
continual basis
Replacing annual physical inventories
Goals of cycle counting are:
1. To identify the causes of errors,
2. To correct the conditions causing the errors,
3. To maintain a high level of inventory record accuracy, and
4. To provide a correct statement of assets.

(through the proper use of cycle counting, inventory record accuracy above 95% can
be consistently maintained) Brooks and Wilson (2004)

Methods For Improving Accuracy

Methods of cycle counting
aisle to aisle counting
this is simple to organize, as counters start at one end of the stores and
gradually work along to the other

Methods For Improving Accuracy

Methods of cycle counting
aisle to aisle counting
Random Sample Cycle Counting

Methods For Improving Accuracy

Methods of cycle counting

aisle to aisle counting

Random Sample Cycle Counting
ABC Cycle Counting

Methods For Improving Accuracy

Methods of cycle counting

aisle to aisle counting

Random Sample Cycle Counting
ABC Cycle Counting

Methods For Improving Accuracy

Methods of cycle counting

aisle to aisle counting

Random Sample Cycle Counting
ABC Cycle Counting
Limitations!

Category
A
B
C
D*
Total

Frequency of stock No. of items per No. of checks/

checks
1000 stock
weeks
4-monthly
6-monthly
1-yearly
3-yearly

100
200
600
100

8
8
12
1
29

Use the cycle counting to sort out why the

records are going wrong

Three-Phase Approach to Improve Inventory Record Accuracy

Published by Roger B. Brooks & Larry W. Wilson

A flawed record-keeping process cannot maintain accurate records;

however, perform the process correctly, and you will have every
opportunity to succeed.
process integrity is an essential ingredient of record accuracy.

Three-Phase Approach to Inventory Record Accuracy

the most important of the three

phases
This phase designs the
operational blueprint for dayto-day action on inventory
related activities.

If the tasks within each of these three phases are correctly

implemented, inventory record accuracy of 95 percent or
better is virtually assured.

Inventory Accuracy As A Quality Issue

Record accuracy problem should be treated as a quality
problem and resolved using quality tools(brainstorming).

The Fishbone Diagram

Inventory Accuracy As A Quality Issue

Record accuracy problem should be treated as a quality
problem and resolved using quality tools(brainstorming).

The Fishbone Diagram

Pareto Analysis

Accuracy Through Information Technology

The development of computer-based records has enabled inventory
across an enterprise to be linked
Care should be taken to identify specifically what is to be achieved by new
technology,
Benefits are maximized if the
procedures enable the following

Input of transactions into the computer without

having them written out beforehand
Fast and simple updating of records

Computations by the computer, and not the inputter

Automatic identification of exceptions and inaccuracies.

Accuracy Through Information Technology

The basic requirements for an inventory system, if there

is to be the chance of accurate records, are:

Multi location options on the stock record

allocation options
transfers between locations
ABC classification
Real-time operation.

Accuracy Through Information Technology

Bar coding

Weigh counting
Monitoring manufacturing work in progress by automatic recording devices
Radio frequency identification

improve accuracy should not rely upon information technology for answers.
Major improvements will be achieved through better control and procedures
before there is the need to spend significant amounts on technology.