How do I improve inventory record accuracy?

A high level of inventory record accuracy calls for a great deal of effort to develop and maintain a perpetual inventory system. The necessary steps are:

1. Select and install inventory tracking software
2. Revise the rack layout to allow for optimal storage
3. Create rack location codes, so that every location has a unique identifying number
4. Lock the warehouse, so there can be no unauthorized removal or movement of inventory
5. Consolidate parts, so that the same items are kept in one place
6. Assign unique part numbers to the parts
7. Establish units of measure for the parts
8. Pack the parts into sealed and labeled containers
9. Count the inventory
10. Enter inventory data into the inventory tracking software
11. Train the warehouse staff in inventory procedures
12. Initiate cycle counting on a daily basis
13. Measure inventory accuracy weekly
14. Post measurement results and reward the staff for accuracy improvements

Clearly, there are many steps in this process, so do not expect an immediate improvement in accuracy. It normally takes multiple months of ongoing labor to achieve a high level of inventory record accuracy.

Click here to see an inventory count procedure.

Podcast

A discussion of inventory record accuracy is available on Episode 56 of the Accounting Best Practices podcast. Listen Now.

Related Topics

How do I ensure a proper inventory cutoff?
How do I reconcile inventory?
Inventory internal controls
Types of inventory errors
What is backflush accounting?