Inventory Reconciliation — Everything You Should Know

Steps to ReconcileYour Inventory

1. Count your physical inventory

First, you need to check the physical products you have on your shelves to get the correct inventory count. Spend some time counting all the items you have in stock.

It is important to do this because mistakes can happen in recording inventory, and you may have inventory stored in different locations. Make sure to count the inventory with your team to get the most accurate numbers before moving forward.

Here are some common methodologies that you can use to conduct your physical inventory:

• Full Count Inventory

In this approach, Your team or an outside inventory company will come to your facility and physically count every item in your inventory using pencil and paper, barcode scanners, or RFID technology.

This approach provides an accurate and up-to-date record of all your stock items. However, it requires shutting down operations, which can be costly, and there is a risk of errors due to the large volume of items being counted.

• Cycle Counts

In this approach, you must count specific items or areas of your inventory daily, making it less stressful and easier to manage.

It will not disrupt your business operations, and there is a lower chance of errors since you are counting in smaller sections.

However, this method takes time to cover your entire inventory, and discrepancies can occur over time.

To ensure accuracy, companies will conduct a full inventory count occasionally. The first step in inventory reconciliation is knowing the actual amount of products you have and counting them will provide this information.

2. Check your records

To ensure accuracy in inventory reconciliation, make sure your inventory records and control systems are updated with current sales and invoices.

Check the stock and serial numbers of each item listed in your records and compare them with your actual inventory.

Items without any stock or serial numbers should also be compared with your inventory-on-hand numbers and supplier invoices. Most companies check and verify these records multiple times to ensure accuracy.

3. Identify the discrepancies

During inventory reconciliation, discrepancies may be found. If errors were made by humans or in math, they can be corrected.

However, if not, sales records should be checked to find any inaccuracies. If sales receipts are missing, there may be lost or misplaced items, or there could be a possibility of theft or fraud.

4. Chase down the discrepancies

You need to decide what level of loss is acceptable in your business. Sometimes, it is not worth the time and cost to find out what caused the loss, especially if it involves low-value items.

However, if you want to investigate the cause, you can interview employees responsible for each step of the process. In some cases, you may not find an answer for the discrepancy. It is important to resolve as many issues as possible, but not to drag out the process until the next inventory count.

5. Reconcile your inventory records

It is necessary to have an accurate inventory count, even if some discrepancies cannot be explained. Adjust your inventory record to match the physical count and take note of any changes.

Although you should try to resolve all discrepancies, there may be instances where you cannot. In those cases, it is time to reconcile and move forward, but do not forget about the discrepancies for future inventory counts.

6. Compare your results to previous inventory reconciliations

After finishing your inventory reconciliation, it is a good idea to compare it to previous ones to see if there are any trends or patterns.

This can help you identify areas that need more attention. It is especially helpful if you have unresolved issues because it allows you to focus on those specific items, which can prevent future issues or help you figure out what is causing the problem.