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Inventory Accuracy Formula

Description: A company must ensure that not only the quantity and location of a raw material is correct, but also that its units of measure and part number are accurate.  If any of these four items are wrong, there is a strong chance that the production process will be negatively impacted.  Thus, the inventory accuracy formula is one of the most important materials handling measurements.

Formula: Divide the number of accurate test items sampled by the total number of items sampled.  The definition of an accurate test item is one whose actual quantity, unit of measure, description, and location match those indicated in the warehouse records.  If any one of these items is incorrect, then the test item should be considered inaccurate.  The formula is as follows:

Number of Accurate Test Items
Total Number of Items Sampled

Example: An internal auditor for the Meridian and Baseline Company, maker of surveying instruments, is conducting an inventory accuracy review in the company’s warehouse.  She records the following incorrect information for a sample count of eight items:

 
The warehouse manager has spent a great deal of time ensuring that the inventory record accuracy in his warehouse is perfect.  He is astounded when the auditor’s measurement reveals an accuracy level of zero, despite perfect quantity accuracy; he has completely ignored the record accuracy of part descriptions, locations, and units of measure, and as a result has had multiple incorrect components of the measurement for some inventory items.  The manager informs his staff that they will be correcting records over the weekend.

Cautions: It is extremely important to conduct this measurement using all four of the criteria noted in the formula derivation.  The quantity, unit of measure, description, and location must match the inventory record.  If this is not the case, then the reason for using it – ensuring that the correct amount of inventory is on hand for production needs – will be invalidated.  For example, even if the inventory is available in the correct quantity, if its location code is wrong, then no one can find it in order to use it in the production process.  Similarly, the quantity recorded may exactly match the amount located in the warehouse, but this will still lead to an incorrect quantity if the unit of measure in the inventory record is something different, such as dozens instead of eaches.

Similar Ratios

Inventory turnover
Obsolete inventory percentage