45 Discrepancies in Inventory

Michael Hrycay

Learning Objectives

Discuss the implications, and common causes of, discrepancies in inventory.

Counting Inventory

The whole point of having inventory in a warehouse is to get it out of the warehouse.  This can be accomplished by selling it or using it to make the product.  The rate at which this happens is called turnover.

Methods

There are two methods of inventory turnover in a warehouse: LIFO and FIFO.

  1. FIFO stands for first in, first out.  This makes sense in the food production industry.  The first product into the warehouse needs to be moved out first, or it will expire.
  2. LIFO stands for last in first out.  Consider stacking palates.  The palate on top is the last one loaded.  It also needs to be the first one removed.  (If you tried to remove the bottom palate first, you would have a bad day.)

As inventory is turned over it can be lost due to the following reasons.  It can be:

  • damaged in transit,
  • spoiled,
  • misplaced or mislabeled so warehouse pickers are unable to locate it,
  • stolen, or
  • lost due to any number of other reasons.

As a result, the recorded inventory will not match what is physically in the warehouse.  It is necessary to physically count inventory to reconcile what actually exists, to what exists on paper.

Counting Methods

Counting inventory can be done in a number of ways.  Most simply, employees can be tasked to go into the warehouse with paper records and record quantities and conditions of inventory.  This is usually only done in small warehouses because it is time-consuming.

Usually, there are electronic scanners that read either barcodes or RFID tags that contain information regarding the contents of the container.  This information is fed directly into a computerized inventory management system.

A full count of inventory is sometimes necessary, but it takes time and may involve a shutdown.  In some cases, employees are reassigned to counting inventory or temporary workers are hired.  Because a full inventory count is such a disruption, partial inventory counts (called cycle counts) are done.  These are usually scheduled at regular intervals where different parts of the warehouse are counted on separate occasions.

Summary

The following video summarizes the above points.

 

 

License

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Discrepancies in Inventory Copyright © 2022 by Michael Hrycay is licensed under a Creative Commons Attribution 4.0 International License, except where otherwise noted.

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