Inventory Audits: Best Practices for Accurate Stock Management

Inventory audits are essential for evaluating the physical stock at warehouses, distributor points, or retail outlets. By providing visibility into stock levels at secondary and tertiary points, inventory audits enable businesses to plan, direct, and control inventory more effectively, ultimately contributing to improved profitability.

What is an Inventory Audit?

An inventory audit involves the physical verification of stock, which can include merchandise, raw materials, finished products, and supplies that are part of the item intended for sale. These audits help businesses ensure that their stock records are accurate, prevent loss, and support efficient operations.

Methods of Conducting an Inventory Count

There are two primary methods for conducting an inventory count:

1. Bar-Code Readers

Using bar-code readers is one of the most accurate methods for inventory counts. This method requires:

• Labelled Stock Items: Each item must have a barcode.
• Specialised Software: Typically an Excel-based or other programme to register the counts.

While bar-code scanning minimises human error and ensures high accuracy, it is also more expensive due to the cost of the equipment and software required.

2. Count Sheets

Count sheets involve a manual, pen-and-paper approach:

• Manual Entry: Auditors record counts against a printed list of stock items.
• Inclusion of Unlisted Items: This method can also account for misplaced materials and products not initially listed, providing a broader overview of stock discrepancies.

Although count sheets are less costly than bar-code systems, they may be more prone to human error.

Best Practices for Conducting an Inventory Audit

To ensure the accuracy and efficiency of inventory audits, consider the following best practices:

• Advance Notice: Inform distributors or retailers about the physical counting schedule to allow for necessary supply adjustments.
• Pre-Counting Plan: Gather and demarcate all parts out of inventory needed for the count.
• Cease Operations: Ideally, cease all operations during the count to prevent movement of materials, or minimise and document any movements to avoid double-counting or omissions.
• Systematic Approach: Break inventory into smaller groups and adopt a consistent method for counting (e.g. left to right, top to bottom).
• Quality Check: Have a sample of stock counted by one auditor re-counted by another to identify errors.
• Recount Discrepancies: If discrepancies are found, re-count 100% of the stock handled by the defaulter auditor before publishing the stock variance report.
• Document Processes: Review and document the stock counting process to facilitate future improvements.

Conclusion

Effective inventory audits are a cornerstone of successful inventory management. By choosing the right counting method and adhering to best practices, businesses can achieve greater accuracy in stock levels, minimise losses, and enhance overall operational efficiency. Whether you opt for the precision of bar-code readers or the flexibility of count sheets, regular inventory audits will ensure that your inventory management is both robust and reliable.

Invest in regular inventory audits to streamline your operations and boost business profitability