Written by: Brook Kole, Inventory Control Manager at PBD Worldwide
If your company has inventory, it is likely (or at least highly recommended) that you are performing annual physical inventory counts, cycle counts or a combination of both. Inventory is often the largest consumer capital for a company, so it is extremely important to have accurate records. With so many different options for reporting inventory count results, it can sometimes be overwhelming and confusing. Let’s break down the different counting and reporting methods and what each of them means.
Simply put, inventory accuracy is a comparison of the physical count to what the system says is on hand or in a location. As stated earlier, it is important that your company is performing an annual physical count, cycle counts or both. Cycle counting is a perpetual counting system where a small subset of inventory, in a specified location, is counted on a specified day. An annual physical count is the counting of all SKU’s within a short time frame and is typically done once a year. Many organizations opt to perform both an annual count and periodic cycle counts. This allows them to closely manage inventory variances and update accounting records.
Now that we understand the different counting methods, let’s take a look at how the results are reported. Inventory results are reported in th different ways: NET accuracy, gross accuracy and operational accuracy.
Net accuracy, which is the most common reporting tool, takes the average of your (+) gains and (-) losses.
For example, if you are counting 10,000 units over 100 different sku’s and the gains are (+) 38 and the losses are (-49), the net unit accuracy will be (-11 units) or 99.9%
Gross accuracy looks at the overall variances to determine your results.
Taking the same scenario, if you are counting 10,000 units over 100 different sku’s and the gains are (+) 38 and the losses are (-49), the gross unit accuracy will be 87 units or 99.1%
Operational accuracy looks at % of locations counted that are correct.
For example, if 100 different sku’s are identified in 450 locations within the count this accuracy measurement would look at how many locations are correct as opposed to how many units are showing.
If 450 locations are counted and 35 are incorrect even by 1 unit then the location is wrong and the operational accuracy would be reported at 92.2%.
Finding a fulfillment partner who understands the importance of inventory accuracy and has the processes in place to effectively control inventory is vital to the success of your organization. Your provider should review all three inventory result metrics to have the best overall understanding of their performance and be proactive with inventory management improvements needed to reduce variances.