How to Keep Accurate Inventory Records?

Keeping accurate inventory records is an important part of maintaining a smooth running operation. An inventory management software solution provides an answer to this challenge, keeping the business fiscally fit.

What are inventory records?

Inventory records, also known as stock records, are based on a structured collection of information and data for items in the company’s possession. While it can include physical assets such as machinery, computers, or furniture, companies that sell physical products should be concerned with the accurate records management of items they sell or use to manufacture sellable items. For manufacturers, this includes raw materials, work-in-process (WIP), assemblies and components, and finished products.

While tracking was done with physical logs in the past, most modern companies use spreadsheets or digital databases that are more conducive to regular, real-time updating. And even though digital spreadsheets are the go-to inventory tracking method for small businesses, they can be clunky and difficult to use in company-wide collaboration.

Inventory management software, often cloud-based, permits a more accurate and secure method of accessing and updating data for inventory control. Provision can also be made for automated backups of critical data.

Core components of inventory records

While some record entries may vary by type of operation, there are some key components that are common to most. They include:

• Product identification and designation information (name, SKU, description).
• Number of items on hand.
• Location information, that is, the area in the warehouse in which the product resides (and in some cases, locations in another company facility).
• Cost per unit data for estimating, proposals, quotes, and retail price calculations.
• Unit of measure for the product or part.

While these are some of the core components for inventory recordkeeping, there are several types of records manufacturers need for different purposes.

Types of inventory records for manufacturers

• Raw materials inventory—records tracking the parts on hand or ingredients available for manufacturing or processing.
• Work-in-process (WIP) inventory—number or amount of parts or ingredients actually involved in the manufacturing process.
• Finished goods inventory—completed product that is available for order fulfillment, shipping, or storage as finished items.
• MRO (Maintenance, Repair, Operations) supplies—items not used in the product itself, but are necessary for maintaining operations. This can include lubricants, spare machine parts, or housekeeping necessities.

The importance of keeping up-to-date inventory records

There are several reasons why accurate inventory records are necessary to keep a company functioning profitably. They include financial benefits, operational advantages, the impact on customer satisfaction, and compliance and quality control. Let’s look at each one individually.

Financial benefits

There are several financial benefits for keeping accurate inventory records. Keeping track of inventory levels ensures reduced capital that is tied up in excess inventory. A company is able to keep just the right quantities of stock on hand.

It’s possible to minimize inventory shrinkage and loss by keeping accurate records that can be used to check for inventory discrepancies. Not all inventory shrinkage is caused by theft, though. In the food and beverage industries, shrinkage is often caused by spoilage.

Accurate inventory records are also used to provide accurate financial reporting and contribute to the valuation of a company or individual facility. Stakeholders need this information for decision-making, so an accurate snapshot of inventory balance sheets value is vital.

Knowing what the beginning and ending inventories are, and what needs to be ordered is also needed for cash flow management. Managers will know what they must spend and where that money should be expended.

Operational advantages

Of course, inventory record-keeping is essential to the business process. Accurate inventory counts help prevent stockouts and the inevitable delays in production and deliveries.

Exact inventory records also streamline supply chain management. Knowing current inventory counts and reorder points allow managers to keep the flow of goods smooth, taking advantage of JIT (Just-in-Time) ordering.

When stock location is tied to inventory records, it’s possible to increase warehouse efficiency as well. “A place for everything and everything in its place” is certainly a good maxim for efficient warehouse management.

Since inventory records must be tied to production scheduling, a manufacturer is able to optimize their production planning, ensuring that finished product will be available on time, every time.

Customer satisfaction impacts

From the customer’s perspective, nothing makes them happier than reliable, on-time order fulfillment. On the flip side, few things irk them more than their product being placed on backorder. A company builds customer trust and loyalty by consistently filling orders. Inventory control assists in on-time fulfillment, especially if using e-commerce websites to capture customer orders.

Compliance and quality control

An efficient inventory management system will help you meet industry regulations and quality control requirements. Some products, particularly those that are perishable, should include a retention schedule for ingredients. When stock is getting close to its usable limit, the inventory management system should trigger resupply as governed by its reorder points.

The inventory management system should also include a means of tracking each part and completed product. Traceability is vital in the event products are found defective and must be recalled.

Checklist to ensure and maintain accurate inventory records

No matter how you track inventory, it’s good to have a method for maintaining inventory integrity. Here is a checklist of things to consider.

Establish standardized procedures

• Create clear guidelines for data entry.
• Implement consistent naming conventions so that identical items are labeled accurately.
• Define the roles and responsibilities of each team member involved in inventory accounting and auditing.
• Document all inventory movements to ensure accuracy.

Regular verification methods

• Outline and maintain scheduled physical inventory counts.
• Implement cycle counting programs to ensure everything is accounted for.
• Have a process for reconciliation with accounting records.
• Do spot checks of high-value or fast-moving items.

Staff training and accountability

• Employees should be given comprehensive training on inventory procedures.
• Schedule regular refresher sessions to avoid inconsistencies.
• Clear accountability for accuracy is vital to maintaining traceability.
• Foster a culture that values precision and order accuracy.

Implement quality control measures

• Documented data validation processes.
• Two-step verification for critical entries.
• Regular audits of inventory data based on accounting periods.
• Immediate correction of identified errors.

Optimize warehouse organization

• Use logical storage locations to keep identical items together.
• Clear labeling systems ensure each item is cataloged properly.
• Organize receiving and shipping areas to keep clutter from hampering operations.
• 5S methodology implementation (sort, set in order, shine, standardize, sustain).

Tips for increasing inventory accuracy

Creating a checklist is just the first step to increasing inventory accuracy. Follow up with these additional ideas.

Leverage technology for data capture, which can include a barcode scanning system and RFID technology for automatic data entry and tracking. Accessing your inventory management systems via apps on mobile devices such as smartphones and tablets enables workers to have real-time access to electronic records and immediate inventory updates.

Streamline inventory workflows by simplifying receiving procedures. Employ structured, even automated picking procedures to get raw material to the manufacturing floor and completed products to shipping. Standardized shipping protocols and an efficient returns management process not only streamline inventory control but also improve it.

Focus on critical inventory items using an ABC analysis system for prioritization. For high-value items, plan for more frequent stock level counts. For products that are prone to mistaken picking, extra validation steps and procedures must be outlined. Some products or parts are highly sensitive to mishandling—design procedures to protect them.

Address root causes of discrepancies, and don’t sweep mistakes under the carpet. Use a systematic investigation to find the root cause of all inventory errors. Document common issues, and design preventive measures to eliminate them.

How inventory management software helps with stock accuracy and traceability

Implementing an effective and efficient inventory management system can feel like fighting the legendary Hydra of Greek mythology. No sooner is one problem solved than two others spring up to take its place. In mythology, Hercules slayed the beast.

In your stockroom, inventory management software saves the day. A key feature to look for is whether the inventory control system can be integrated with the current system used. For example, spreadsheets and other inventory databases can often be easily uploaded into the more comprehensive system.

Here’s how inventory management software simplifies accuracy and traceability.

Centralized real-time data management

Inventory management software gives you a single source for accurate inventory information. When used in a cloud-based configuration, updates are automatically available to all connected systems and devices.

With a click of an onscreen button or two, real-time visibility into stock levels is available for everyone with the required permissions, from the C-suite to the manufacturing floor. If you keep your inventory in remote locations, such as across town or across the region, they can be integrated easily. This means stockouts can be prevented quickly and efficiently.

Automation capabilities

When connected to barcode scanners, RFID sensors, and the like, data entry and stock validation are automated, reducing the potential for human error. By accurately tracking stock levels, managers get automatic alerts for low stock.

Scheduled reordering of inventory can be based on a set of parameters to keep inventory at optimal levels. Automation and scheduling also streamlines cycle counting processes when used.

Advanced tracking features

Some of the more advanced tracking features found in ERP software and inventory management systems are:

• Lot and serial number tracking, necessary for traceability.
• Expiration date management for perishable ingredients.
• Comprehensive audit trails that assist in identifying where discrepancies and mistakes occur.
• Complete chain of custody documentation from point of origin in the supply chain to the point where the product leaves the shipping dock.

Reporting and analytics

What used to take hours, even days, is not easily accomplished literally on demand. These include some or all of the following reporting and analytical data.

• Trend analysis and forecasting to enable accurate lead time and delivery schedules.
• Variance reports and discrepancy tracking to identify shrinkage and allow for remediation and mitigation.
• Performance dashboards help identify bottlenecks in the process that are affected by poor inventory management.

ERP-specific benefits for manufacturers

There are benefits to using inventory management software that are specific to SME manufacturers. Inventory management is integrated directly into production planning and process control.

When used with Bill of Materials (BOM) management integration, production managers can give the green light to the manufacturing process or reschedule because of parts or component unavailability.

Once a product is put into process, work order tracking gives managers and supervisors real-time visibility into where a product is in the processing cycle and where it will be moved to the next workstation.

In a nutshell, inventory management systems embedding into a solid manufacturing ERP solution bring order to the chaos often found in the manufacturing process.

Key takeaways

1. Accurate inventory records are fundamental to financial health and operational efficiency for SME manufacturers. Stakeholders can be presented with valid numbers for the fiscal year reports.
2. Regular verification through physical counts and cycle counting is essential for maintaining data integrity. Some human interaction is always necessary. But it can be assisted by MRP inventory modules.
3. Standardized procedures and staff training form the foundation of inventory accuracy. As with anything, SOPs (standard operating procedures) and adequate training help ensure good results.
4. Technology solutions like barcode scanning and RFID significantly improve data capture accuracy. By taking opportunities for human error in data entry out of the picture, accuracy is achievable.
5. Addressing root causes of discrepancies, not just symptoms, leads to long-term improvement. Just as in medicine, the root cause of inventory illness must be found, treated, and eliminated.
6. Inventory management software provides the tools needed for comprehensive inventory control and traceability. From point of origin to the hands of the customer, a complete chain of custody ensures regulatory compliance and safe product use.

Frequently asked questions (FAQ)

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