Inventory Reconciliation

If you have a family member or ever been privileged to work at a warehouse or distributor location, one of your most memorable times should have been counting stock. Arrange the bottom, stack it, make it easy to count because, at the end of every day, you’ll take stock of every single SKU.

I walked into one of our distributor's locations yesterday and they were counting stock.

A lot of processes we were used to for years are still common across the distributors who serve almost 90% of our consumables, like counting stock and stacking receipts to add the day's sales.

What is Inventory reconciliation?

It is that dreaded activity to see just how different your book and actual values of inventory are. All seasoned business owners know that these two values almost never coincide, and the reasons why that happens are many.

• Counting inventory being a manual exercise provides a great scope for human error.
• Due to miscommunication, products may be recorded as placed in a certain section, but may actually be elsewhere. In the case of misplacement, it is hard to figure out where the stock actually is, especially in large warehouses.
• Malpractice could be another reason why the book and actual values of inventory do not match.
• The most common reason, however, is that you have been unable to account for returns and replacements on products, thus messing up the inventory counts.

Maintaining an accurate picture of the stock is important for more than just accounting reasons.

Accurate numbers help you order replacement products in time so that you never disappoint customers. In fact, stock-outs can cause your customers to take their business elsewhere permanently.

A worldwide examination of extent, causes, and consumer responses

More than half of all customers who cannot buy something because of stock out will either switch to a different brand or take their business to a different distributor.

Also, for your business, inventory is an investment, and if you don’t have an accurate picture of your investments, how will you measure your revenues and returns?

Methods Of Inventory Reconciliation

Until automation comes, stock reconciliation mostly happens manually. Whether you do this just as you receive fresh stock, or after discovering an error, here are a few ways to count inventory manually.

• Counting Through The Entire Warehouse; Built for the brave, this is a herculean task, involving pausing your operations until all counting is complete. Your staff then goes through each and every product in the warehouse and updates the count.

• Cycle Counting; Unlike counting the whole warehouse doesn’t require you to pause operations. On any given day, choose a certain area of your warehouse/store (an Aisle/Rack). Assign a person to tally the quantity of what is present in your records compared to what is actually present. Reconcile the difference and update records.
• Label counting; Identify those 20% items that make up for 80% of sales. In other words, these are products that move very quickly. Mark items in order of relative importance. For example A for the ones that move around the most, probably with the least margin, and B and C as it progresses. Then count the A’s the most. This makes sense because you’re counting items that move faster more frequently. ABC counting is often considered to be one way of cycle counting.

The general guideline is to keep the high-value items to a minimum.

What’s On Paper, And What’s Real

Once you count your stock, you may realize that the values in your spreadsheets may not match with the values that you’ve just, actually counted. Why does this happen?

• Spreadsheets are not dynamic: When you use spreadsheets to manage inventory, you’re asking for trouble. For one, the person responsible for updating it may simply forget to do so on a particular day. They may also fail to receive information about sales made through all the different channels you sell on. This is why you’d benefit from investing in good inventory management software. It keeps track of your inventory dynamically, tirelessly, and 24X7.
• Units of measurement: Sometimes, using the wrong unit of measure can make all the difference! For example, if someone bought a 25Kg sack of rice from you, but your employee updated it as 50 Kg, the crazy spiral of inventory woes for both products begins.
• Reconciling damaged goods: Sometimes, products that were returned to you for damages may accidentally be added to your inventory. The product is not saleable, but it still shows up in your count, thus messing with your reorder levels.

These are just some of the many problem areas you can look for when book entries don’t match the physical count. If none of these reasons fit in, also consider malpractice, missing paperwork, and finally, look in the scrap.

Use Distro

Considering how key a role inventory plays in your business, wouldn’t it be better to just keep it in order all the time? When the time comes for stock reconciliation, you can be sure to avoid major errors.

When you use Distro for inventory management, reconciliation becomes easier. By accessing the product history information, you can see exactly where and when each unit of a certain product was bought and sold.

• You can log in to your dashboard and confirm purchase dates through your accounts tab. Here’s what it looks like

When you click on it, this opens up.

For each date when the product was added, and any necessary descriptions, you can see a record. Similarly, you can click on the sales to know each time the product was sold.

• If there are any discrepancies when you count your stock, you can reconcile the numbers from here. This virtually eliminates the need for manual stock-keeping.
• Also, your inventory can be dynamically managed. You can also get a picture of which products are low in stock. Thanks to our in-app notifications which activate based on how your inventory volume depletes.

As a distributor, you may have dreaded the day when you have to count stock. Indeed, major discrepancies in stock can be pulled up in an audit and cause you to lose face, not to mention the losses you would bear.

However, with a little bit of foresight and software that supports you, reconciliation of inventory can be easy!