If you want to strike fear into the heart of an ecommerce business owner, say the words, “inventory discrepancy.”
Much like, “Houston, we have a problem,” it’s a loaded phrase that requires all hands on deck until the cause of the discrepancy is identified and the problem is resolved. Unfortunately, inventory discrepancies are a common occurrence in many ecommerce businesses and fulfillment warehouses. (We know this, because they’re usually the reason ecommerce businesses turn to us for help.)
Today, we’ll cover what it means to have an inventory discrepancy, the most common causes, and how to avoid them.
What is an Inventory Discrepancy?
An inventory discrepancy is what happens when the physical number of inventory units you have in your warehouse doesn’t match the number of units in your records or inventory management system (IMS).
So, what’s the big deal? Who cares if you’re off by a few units? Well, that depends on what you’re selling, doesn’t it? If they’re 57-cent widgets, it’s not that big of a deal. If they’re 70-inch TVs or one-of-a-kind items, it’s a much bigger deal. Either way, you need to know how many you have, so you don’t run out unexpectedly, or pay too much in holding costs for overstock.
If the actual count is less than your records indicate, you paid for merchandise that isn’t there. You could put yourself in the embarrassing situation of selling a product you don’t have, and having to cancel the order and refund your customer. If the actual inventory count is higher than the records indicate, then either your sales numbers are off, or you got more than you ordered. But which is it? The first thing you have to do is get to the bottom of the problem.
The Best (and Worst) Ways to Find an Inventory Discrepancy
There’s no getting around it: the only way to know how much inventory you physically have on hand is to actually count it. It’s not fun. It’s tedious and time consuming, which is why many self-fulfilling ecommerce businesses don’t do it often enough. But it needs to be done, and certain times are better than others to do an inventory reconciliation.
The worst time to find out you have an inventory discrepancy is when you run out of something. Orders are coming in that you can’t fill, and even if you reorder today, it’ll be weeks before the shelves can be restocked. You’re losing revenue and frustrating your customers at the same time. Essentially, you just shot yourself in the foot by not staying on top of inventory levels.
Every ecommerce business should hold regular, routine inventory counts. How often? That depends on several things: your inventory turnover rate, the number of SKUs you sell, and the accuracy of the inventory management systems you or your fulfillment provider have in place. High-volume, fast-moving inventory should be counted more often than slower moving items (sometimes as often as once a week). Sophisticated order and inventory management systems keep track of inventory better than manual spreadsheets. But if you keep to a regular routine, you’re more likely to catch discrepancies while you have enough lead time to reorder.
The best time to find an inventory discrepancy is before the inventory gets to your warehouse shelves. Many problems can be avoided by conducting thorough inventory counts in receiving, so you know immediately if you’ve been shorted or over-served by your supplier. Advanced third-party logistics (3PL) companies like ShipMonk have strict receiving processes that include weighing, photographing, and inspecting inventory for damage as it arrives. This not only helps the 3PL prep for slotting, picking, and packing, it also identifies inventory discrepancies before they affect your customers. Knowing whether the problem started with the supplier or occurred later, within the warehouse, will also help you identify the cause and resolve the problem faster.
What Might Cause an Inventory Discrepancy?
Identifying an inventory discrepancy is simple; identifying the cause, not so easy. That’s because there are many possible causes for an inventory discrepancy. The best you can do is rule out each cause one by one.
Supplier mistake: they sent too many or too few, or they packed them poorly, which caused damage.
Sloppy Receiving: your receiving team didn’t count items correctly, recorded them incorrectly, or didn’t inspect them carefully for damage.
Mislabeled Merchandise: items are labeled with incorrect SKUs or item numbers, which can result in confusion with other items, mis-shelved items, and lost merchandise.
Human Error: despite correct labels, when there are no checks in place, items may be shelved in the wrong bin, or the wrong items may be picked for orders. Data that is manually entered may be entered incorrectly. Packing and shipping paperwork can be misplaced. The more steps that require human interaction, the more room for error.
Shrinkage: the loss of inventory due to theft, error, fraud or damage.
Poor Storage Practices: merchandise is damaged by improperly moving or stacking heavy, bulky, or delicate merchandise.
Infrequent or Sloppy Inventory Reconciliation: there are no policies or procedures in place to accurately keep track of inventory levels.
Returns: you’re not tracking your inventory all the way through the returns process, so you have no idea where it ended up. It might be back on the shelf, ready for sale, or it might be in a donation box or landfill.
Outdated Software: your system doesn’t have the ability to track inventory levels in real time, or to receive notifications when it’s time to reorder.
How to Avoid Inventory Discrepancies
If you’re frequently experiencing inventory discrepancies, you need to make a change — maybe several changes. Here are some places to start.
- Update your warehouse management system to eliminate manual data entry and reduce errors.
- Improve employee training to prevent errors in slotting, picking and packing.
- Improve communication with your suppliers and your fulfillment provider so problems can be identified immediately and resolved quickly.
- Perform periodic inventory reconciliations, or invest in a perpetual inventory system that automatically updates inventory levels with every order.
- Optimize slotting, so you can keep an eye on the fast-moving SKUs and speed up the receiving process.
- Develop an efficient returns process, so your reverse logistics provider knows what to do in every situation, and you know where your inventory is at all times.
- Implement a loss-prevention policy.
- Upgrade warehouse security.
- Establish rigorous receiving and inventory controls and make sure they are followed.
- Outsource fulfillment operations to a 3PL with an advanced warehouse management system that is easy to use, gives you real-time data, and allows you to set reorder points and automate tasks.
You Can’t be an Expert at Everything
Most growing ecommerce businesses can’t afford to invest in an end-to-end inventory management system just to prevent errors. But thankfully, they don’t have to: they can invest in a relationship with a tech-forward 3PL that already has all of this in place.
Well-run fulfillment operations depend on integrated technologies, automation of inefficient tasks, accessibility of real-time data, well-trained workers, multiple locations, and seamless interactions with all types of ecommerce platforms and shipping companies. A 3PL like ShipMonk manages inventory and fulfillment for hundreds of omnichannel ecommerce companies in all shapes and sizes. They are experts at what they do, which gives ecommerce owners more time to devote to growing their business. Contact ShipMonk today for a demo of their industry-leading software platform, and put a stop to inventory problems once and for all.