The 2 sides of Inventory Accuracy

With less than 200,000 hits on Google search “Inventory Accuracy” does not exactly qualify as one of the most popular business subjects. Especially if compared to buzz words or phrases such as “Customer Loyalty” (2 million hits), Innovation (134 million hits) etc. However if Inventory Accuracy (IA) is connected to 2 of the biggest unresolved (industry-wide) pains of the retail industry – and not only- then it follows that IA deserves more attention from the business community than it currently receives.

The 2 sides of IA which at the same time represent 2 of the biggest pains of the retail industry are:

1) Inventory Shrinkage: is the difference between the booked inventory a company should have as a result of its sales, purchasing and production and the actual inventory it has on hand. Reasons for shrinkage are: employee and customer theft, Accounting errors, inventory counting errors (IA), perishables, loss & damage, fraud.

2) Out of Stocks (OOS): or Out of Reach (OOR) which is probably a more accurate descriptor for the second side/pain is defined as missing products from the retailer shelves that were supposed to be available to the shoppers to buy. A store’s system might show a certain product in-stock (or on-hand) i.e. in the backroom or on the overhead shelves but as long as it is not available to the shoppers to buy this constitutes the pain in the form of lost opportunity to sell.

Quantification of the 2 pains is offered by different studies. According to the National Retail Security Survey conducted back in 2002 retailers in the US lost 31 Billion US$ due to Inventory Shrinkage. According to a GMA Logistics study CPG manufacturers in the US loose anywhere between 6-20 Billion US$ every year due to OOR.

This white paper discusses ways to improve on IA in order to provide sufficient information to understand the location, the time and the items involved in Shrinkage and OOR so that adequate preventive methods can be developed and implemented.