Inventory accuracy formula
/The Importance of Inventory Accuracy
A business relies upon the accuracy of its inventory records in order to maintain its production and customer fulfillment systems. For these records to be truly accurate, they must contain accurate information about quantity on hand, the location of inventory, the unit of measure, and the part number. If any one of these items within an inventory record is wrong, then the entire set of information can be considered sufficiently incorrect to render the entire record useless. For example, the inventory quantity may be completely accurate, but if the location code is wrong, then the materials handling staff cannot find the item. Or, if the part number is wrong, a component cannot be used. Consequently, the inventory accuracy formula encompasses all four elements.
These issues are especially important for a business that experiences a high rate of inventory turnover, since it needs to know the exact amount on hand at all times, as well as where it is located. This is also an important issue when the cost per unit is high, since management will not want to invest too much in these units - consequently, it is essential to know the exact amount of inventory on hand.
How to Calculate Inventory Accuracy
To calculate inventory accuracy, divide the number of completely accurate inventory test items sampled by the total number of all inventory items sampled. An accurate inventory test item is considered to be one for which the actual quantity, location, unit of measure, and part number matches the information stated in the inventory record. If even one of these items is found to be incorrect, then the entire item tested should be flagged as incorrect. The formula for inventory accuracy is:
Number of completely accurate inventory test items ÷ Total number of inventory items sampled
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Example of Inventory Accuracy Calculation
As an example of inventory accuracy testing, an internal auditor for ABC International conducts an inventory accuracy review in the company's storage area. He compiles the following incorrect information for a sample test of eight items:
| Audited Description |
Audited Location |
Audited Quantity |
Audited Unit of Measure | |
| Alpha Unit | No | No | ||
| Beta Unit | No | |||
| Charlie Unit | No | |||
| Delta Unit | No | No | ||
| Echo Unit | No | |||
| Foxtrot Unit | No | No | ||
| Golf Unit | No | |||
| Hotel Unit | No |
The result of the test is inventory accuracy of 0%. The test score astounds the inventory manager, who has been focusing solely on quantity accuracy. Even though the quantity counts did indeed prove to be accurate, the inventory records were well below expectations for the other data items.