Inventory Discrepancies: What Causes Them & How to Prevent Them

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Tracking inventory throughout the ecommerce supply chain seems like a straightforward process, but since inventory is constantly moving, it’s not uncommon for inventory to get misplaced, lost, or stolen.

Having the right systems and processes can help you track inventory efficiently, however, tracking inventory is only half the battle. Keeping accurate inventory records by establishing a strong inventory reconciliation process is also key.

During this process, you’ll often have to play detective and get to the root cause of why a discrepancy in inventory exists, which can be caused by a myriad of factors.

This article explores what causes inventory discrepancies and how to avoid major errors and inaccuracies from causing profit loss.

What does inventory discrepancy mean?

Inventory discrepancy refers to a situation in which the amount of inventory on hand is different from current inventory records. 

Though discrepancies in inventory levels are a common situation, it can lead to a loss in profit, which is why it’s important to have a system that tracks, record, and improves the inventory reconciliation process.

Causes of inventory discrepancies

Inventory discrepancies are all too common. By taking the time to understand the root causes, you’ll be better equipped to reduce to major discrepancies that can take a hit on profit. Here are the major causes of inventory discrepancies that you need to be mindful of.

Inventory shrinkage

Inventory shrinkage is often caused by an accounting error, theft, or fraud. To reduce risk and prevent inventory shrinkage, it’s important to implement loss prevention tactics, such as employee training and improved warehouse security.

Lost inventory

Physical inventory can get lost or misplaced due to human error, which can occur during the warehouse receiving or fulfilment process. 

Maybe inventory was wrongly labelled, stored in an incorrect location, or mistaken for another SKU. Sometimes, suppliers even dispatch the wrong quantity of product than what was invoiced. To prevent lost inventory, establishing a rigorous warehouse receiving process is essential.

A warehouse inventory management system is designed to track inventory using barcodes so you can easily pull up what the product is, whether or not the received inventory matches the purchase order, and where it should be stored. 

Poor returns management

Reverse logistics is just as important as the initial fulfilment and last-mile delivery processes. If you’re seeing a spike in inventory discrepancies, a poor returns managementmight be the cause. 

Sometimes returned items get damaged in transit or they needed to be disposed. Because of the different ways returns can be treated (restocked, donated, disposed, etc.), keeping up-to-date records of how returned items were handled can help reduce inventory discrepancies tremendously. 

Bad or outdated technology

Especially for businesses that are keen to scale quickly, archaic technologies do more harm than good when it comes to reducing inventory discrepancies. Outdated inventory tracking systems that still employ manual processes are more prone to error.

That’s why it’s important to implement an automated inventory management system to ensure that inventory is being tracked accurately in real time. 

“When it was time to source a new 3PL, I was looking for three things: accuracy, cost savings, and access to data. At my previous 3PL, nothing seemed to come easy.

Everything was done on spreadsheets and it was very difficult to get the fulfilment data I needed. Now, we’re working with a tech-enabled 3PL that seamlessly provides data to help us make business decisions. I felt like I couldn’t grow until I moved to ShipBob.”

Courtney Lee, founder of Prymal

Poorly trained employees

If employees aren’t all properly trained on how to receive, store, manage and track inventory, discrepancies are more likely to occur. 

Having the right technology in place is important, but without proper employee training, human error is still a significant risk. Having straightforward processes and workflows in place help employees manage high volumes of inventory efficiently. 

And, if employees are aware of how inventory is managed throughout the supply chain, the better equipped they will be in navigating discrepancies and making improvements accordingly.

How to avoid discrepancies with your inventory

Inventory accuracy reduces the risk of supply chain issues, such as incorrect customer orders, product shortages, theft, damages, and financial loss for your business.

If you’re in charge of storing multiple SKUs in large quantities, inventory discrepancies can happen. That’s not to say there aren’t ways to reduce risks. Here are best practices to avoid major inventory discrepancies. 

Communication with suppliers

Good supplier relationships can make all the difference when it comes to gaining better inventory control.

At every step of the way, if your supplier shares updates on your pipeline inventory, you can better plan for when to receive it, how much of each SKU you’re expecting, and have it stored correctly and in a timely fashion. 

In the long run, not only does having strong communication with your supplier avoid inventory discrepancies, it also helps to reduce stockouts, overstocking, and lost inventory.

Thanks to transparent and open lines of communication, even if the wrong goods or quantities were dispatched by your supplier, you will be able to identify discrepancies right away.

Update your inventory management systems

In this drastically changing retail landscape, outdated technology systems are sure to be holding you back and limiting your business productivity.

With an advanced inventory management software, as offered by ShipBob, you can rest assured that SKU tracking is automatically performed and that the recorded inventory levels are always up-to-date and accurate. 

“Having ShipBob’s dashboard is so helpful, especially when you can look on there and see how many have been sold today and how many you can sell. It’s really helpful to know that it’s a trustworthy inventory source!

It’s really handy, and I love that it just automatically implements new changes.”

Nakisah Williams, founder of Craft Club Co.

Training employees

Your staff needs to be offered skill-building sessions on everything from inventory planning, warehouse setup, and warehouse receiving, to effective stock counting and digital inventory recording. 

Use this as an opportunity to let them know how inventory discrepancies affect them directly and indirectly, including how it affects promotions, paychecks, employee profit shares, and more. Once they are clued in on the best practices, there will likely be fewer human errors.

Partner with a 3PL

When it comes to logistics operations, errors (even small ones) can cause major disruptions. Not only can inaccuracies, inefficiencies, and mistakes cut into profit, but they can also negatively impact the customer experience.

By handling and automating your inventory management process, a 3PL offers greater control while optimising costs and saving you time. 

At ShipBob, we eliminate inventory inconsistencies by offering a best-in-class fulfilment solution with an international fulfilment centre network powered by premium, centralised technology. 

ShipBob’s world-class team takes measures to keep your inventory safe and secure, without you having to do any of the time-consuming work yourself.

Stop worrying about inventory and start thinking about growth

Human error or flaws in inventory control procedures are what cause inventory discrepancies.

ShipBob plugs both gaps with its high-tech inventory management system and automated inventory audit procedures at professionally managed storage facilities. This is critical to help your business scale sustainably.

Whether you are restocking inventory or allocating SKUs, we offer real-time inventory tracking so that you always know where and in what condition your SKUs are. 

Additionally, ShipBob’s inventory analytics offer useful insights into precisely what’s going on with your stock and how to prevent inaccurate inventory scenarios.

“ShipBob’s analytics tool has been great to have. We can see inventory reconciliations and easily view SKU velocity, transit times, and inventory distribution recommendations.”

Pablo Gabatto, Business Operations Manager at Ample Foods

inventory summary and turnover from ShipBob's analytics tool

With ShipBob, you have an inventory management and fulfilment solution that helps you stay on top of your inventory.

Click the button below for more information on ShipBob today.

What is an inventory reconciliation?

Inventory reconciliation is the process of comparing physical inventory counts with records of inventory on hand. This is an important auditing process as it helps reduce stock discrepancies and understand why there are discrepancies in the first place.

How can inventory discrepancy be reduced?

Accurate inventory records are a sign of a healthy supply chain. Running regular inventory checks and staying consistent with inventory reconciliation is essential to avoiding major inventory discrepancies. Additionally, partnering with a 3PL like ShipBob can help you reduce risk by taking care of the storage and fulfilment process while also giving you full visibility into inventory levels in real time. 

What causes inventory discrepancies?

Inventory discrepancies can be caused by a multitude of factors, such as warehouse receiving errors, misplaced or lost inventory, inaccurate records of returns, using outdate warehouse technology, and poorly trained employees.

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Written By:

Kristina is the Sr. Director of Marketing Communications at ShipBob, where she writes various articles, case studies, and other resources to help ecommerce brands grow their business.

Read all posts written by Kristina Lopienski