Could bulk stock surveyor assumptions be compounding your inventory shrinkage problem?

Author: Bernard Serote

Photo by Jim Witkowski on Unsplash

Bulk stock producers conduct periodic stock surveys to reconcile the financial records with physical stock balances as a control measure that aims to ensure accurate reporting of stock.

Independent stock surveyors are enlisted to evaluate the stock levels and provide figures which are then compared to the balance on the financial records. The frequent result is a surveyed level of stock which is less than that on the financial records prompting the financial officer to write-off stock.

Annually these write-off losses contribute significantly to reducing an entity’s profitability.

What if the independent surveyor is wrong?

Companies could be unnecessarily incurring write-off losses due to incorrect survey method assumptions.

Qnum Analytics sought to assist a soda ash producer client in assessing the scientific soundness and assumption validity of the methods applied by the appointed independent stock surveyor.

Key Findings

The surveyor made mathematically incorrect extrapolations in an attempt to “predict/guess” dead stock within the silos.

The extrapolated values by surveyor were never highlighted in previous silo level stock-take reports which prevented a timeous detection of the issue.

Impact

The data manipulation skewed the mean mass of the material in the silos and thus elevated the inventory variance. This data manipulation raised questions on the integrity and reporting conducted by inventory surveying methods.

The business has historically written-off up to 1500 tons worth of stock in a single quarter as a result of the numerical manipulation by the stock surveyor who has been conducting their surveys for 12 years.

Conclusion

This exercise illustrated that silo dipping methods have inherent error margin which businesses must be aware of and proactively address.

Qnum Analytics, with its OI Solution, can assist dry bulk producers proactively manage these types of issues that elevate inventory shrinkage losses.

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store