This article was updated in March 2023 to reflect current trends, statistics, and contemporary information.
For any retail or eCommerce business owner, inventory stock will fluctuate constantly and there is a very real chance that your latest inventory records don’t accurately match your physical inventory stock.
It is important to keep track of all your inventory and it is necessary to undertake periodic inventory reconciliations to ensure that the numbers in the database match the on-hand inventory stock.
What is inventory reconciliation?
Inventory reconciliation is the process of matching inventory records with the physical inventory stock held in your store or warehouse. The process of inventory reconciliation starts by counting stock to match physical inventory available for sale with recorded stock.
Inventory reconciliation is the most important part of a stocktake, as it determines how accurate your inventory levels are.Inventory reconciliation also involves the counting of damaged or outdated products and helps to identify the source of inventory discrepancies so they can be addressed. The process helps to improve inventory tracking procedures and prevent theft.
When inventory discrepancies are found, inventory records are updated, or reconciled, to match the actual number of items on hand. This requires creating a stock reconciliation statement that accurately represents your current inventory and means stock items need to be added to or removed from the database.
The inventory reconciliation process
To maintain effective inventory control, businesses need to periodically compare recorded inventory stock against the actual physical stock in the warehouse or retail outlet.
If there is a difference between the number of items your records state and the actual stock, you need to find the source of the error and reconcile that difference.
The basic steps of a stocktake and inventory reconciliation process are:
Step 1: Count your physical inventory
The first step in reconciling your inventory is conducting a stocktake. This can be a time consuming and error-prone task, especially if you are doing it manually, so you may opt to close your doors to the public for at least a day or two depending on the amount of stock to count.
We advise using barcodes and barcode scanning technology to carry out this task, as it will create a more accurate count and is less prone to human error.
Step 2: Compare and contrast
The next step is to match the above count to the count you had recorded previously - and more importantly, to take note of any discrepancies. Once you’ve identified any stock discrepancies, for instance, if there are less of item ‘A’ in your newest count versus the old count, you’ll be able to adjust your inventory records to suit.
In the same way, if there are more of item ‘B’ in your newest count, you can add that to your inventory record and be sure to focus on selling that particular item once the doors open to the public again.
Step 3: Assess the results and check for recordkeeping errors
Mistakes can be made if items are typed in the wrong column or the math isn’t done correctly. Sometimes the error can be on the calculation side, while other times the physical inventory is missing.
It’s also important to make sure all invoices have been paid and shipments have been entered into the system. Perhaps you counted 400 soccer balls, but your records state you should only have 100.
If you haven’t entered the most recent invoice of 300 soccer balls, then your numbers will seem off. Also, talk to employees who do the stocking and see if anything different happened from their perspective.
The inventory reconciliation process will help business owners better understand stock levels, which also helps with cash flow.Optimising your inventory reconciliation with better control
Inventory reconciliations help businesses to determine the issues that are causing shrinkage and allows them to implement processes to prevent them. Optimise inventory control to reduce the risk of inventory discrepancies by taking the following steps:
- Organise your store and ensure stock items are easily located and in their proper place, clearly labelling boxes and shelves to avoid confusion.
- Minimise the risk of human error by introducing the right technology. Barcode scanners and RDIF devices improve inventory control and help reduce the risk of counting errors when undertaking an inventory reconciliation.
- Implementing a POS system that tracks sales and integrates with online inventory management software to automatically update inventory levels in real time, every time a sale is made.
- Streamline inventory reconciliation through cycle counting to streamline the process of reconciling inventory. Grouping products into categories reconciling one category at a time and systematically counting through every single product on a continuous basis.
- Invest in digital tools to help optimise inventory control. With online inventory management software, you can enter detailed information about your inventory into the system and sync the software to your POS system.
Getting the right online inventory management solution to deal with the intricacies of inventory reconciliation will save you time automatically adjusting inventory records as sales are made.
Automation helps avoid mistakes, specifically when compared to manual inventory control. However, even with digital tools, inventory reconciliation should still be undertaken on a regular basis, as occasional discrepancy can occur and all other processes running well, may indicate shoplifting or theft.
