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Inventory Reconciliation: Why Taking Stock is a Determiner of Store Health

Inventory Reconciliation: Why Taking Stock is a Determiner of Store Health

by Camille Chin  |  June 16, 2020

There are two main advantages to reconciling your inventory. First, comparing your counted, in-store inventory to the logged inventory in your Point of Sale (POS) will make you aware of important inventory discrepancies that may otherwise go unnoticed. Discrepancies exist for multiple reasons: supplier fraud, shoplifting, return fraud, employee theft, human error, damage and more. Shrink has cost retailers upwards of US$50 billion in past years. 

Second, in addition to protecting profits, maintaining inventory accuracy helps with demand forecasting and demand planning, ensuring you’re always ready to meet omnichannel demand, and helping to prevent overstocks and stockouts. This guide will help you perform a successful inventory reconciliation so you get your stock numbers right.

Perform a Physical Count

Counting the physical inventory levels on the floor and in the stockroom can seem daunting. Consider counting in sections (all of the belts and socks, for example) or by product (women’s jeans), and doing so daily, weekly or monthly rather than biting off the entire store several times a year. 

Another way to cycle count is according to the ABC method. “A” items are your top performing SKUs representing 20% of your total inventory; “B” and “C” items are your middle and bottom performing SKUs representing 60% and 20% of your inventory, respectively. “A” items should be counted more frequently, at least eight times a year, for example; “B” items should be counted, say, six times a year; “C” items four times. 

Inventory counts can be done by pen and paper, or using an Excel doc. Alternatively, use an inventory management app like Jesta’s that scans barcodes for increased accuracy and speed. RFID systems that automatically track what’s coming in and going out of stores is another, albeit costly, option.  

Prep the Store for Success

Counting merchandise can be tedious and time consuming. Your team of workers should be detail oriented and patient. If you’re counting the inventory levels of the entire store, prep the space for success. Ensure that everything on the floor is on the right shelf or rack and that boxes in the stockroom are clearly labeled. Damaged and outdated products have to be considered too, and your POS system should be reviewed for miscellaneous products. 

Print out a map of the store for organizational purposes, and consider numbering shelves and racks. Assign workers to a product or section, confirm units of measure and check off what’s been completed as they go. 

Compare the Results

Remember: the goal of inventory reconciliation is to achieve a common truth in both your POS and physical store. In other words, you want the records to match. When all of the count figures are in, recount any products or sections that have discrepancies that are suspicious, whether big or small. 

Compare numbers with past count results and look for patterns. Are the inventory levels of higher priced products always inconsistent? Does it seem like products near the entrance tend to go missing? Check sales and shipment records before assuming the worst. Discrepancies have to be reconciled. If you’re using an Excel spreadsheet for inventory tabulations, it’s easy to update it manually. Inconsistencies in your POS will have to be adjusted in the backend. 

Consistently reconciling the actual inventory in your store with the recorded inventory in your POS is the best way to expose issues and take appropriate action.

AI and the Future of Inventory Management

In past blog on artificial intelligence (AI) entitled How Artificial Intelligence is Improving Retail, we discussed how Walmart commissioned custom robots with 3D cameras to scan shelves for item availability, location and price verification. The six-foot-tall, armless machines are currently in 350 US stores; an additional 650 stores are expected to get the robots this year. 

More and more retailers want shelf-level visibility in real time, but robots can only scan shelves every few hours and, in the interim, a product can run out. Many retailers are looking to AI for additional inventory solutions. 

AI-driven Demand Prediction considers the effects of external factors (like the weather) on consumer demand while Reinforcement Learning acts on predictions. Reinforcement Learning works by rewarding and punishing the simulation model for acting correctly and incorrectly — a reward for reordering stock within an appropriate window, a punishment for letting a product run out. 

While AI may be the future, implementing the technology can be expensive and it’s not a cost that most retailers can easily absorb. Expect traditional inventory management solutions to help take tallies for awhile especially since they are effective. 

The importance of inventory management and inventory reconciliation cannot be overstated, after all, the items in your stores are literally placeholders for your money. Advancements are continuously evolving — it’s up to you decide which ones count.

For information on Jesta’s Inventory Management solutions including its mobile solutions for cycle counting, click here. For more great industry content, click here.


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