Do Your Inventory Results Swing Like a Pendulum?
Are your physical inventory results swinging from bad to good like the pendulum on a grandfather clock? First swing shows a pickup, the swing back has shrink through the roof. How do you have a pickup? I mean, really, how realistic is it that your customers are bringing merchandise into the store and leaving it behind? There’s nothing more frustrating than going through the time and effort to prepare for an inventory, bring the count crews in, and come up with some crazy, stupid shrink results. You can’t run a business with numbers you don’t trust. These lousy inventory services…why can’t they just accurately count the merchandise and stop wasting my time and money!
But wait, what if the inventory guys DID count it accurately and the results got screwed up somewhere else in the process? What if the big pendulum swings are your fault? When you see big swings from really good to really bad then maybe you need to re-visit your inventory cut-off procedures and your inventory adjustments. You have cut-offs and adjustments, right? If you don’t, you’re inventory reconciliation is probably wrong.
CUT-OFF PROCEDURES
When you get ready for inventory you need to stop the movement of merchandise so it can get counted properly. This means shipments, deliveries, transfers, vendor direct receipts, and any other method that moves inventory between your locations. If you can’t stop the movement 100%, then you need to identify the items that are in transit and determine who “owns” it at the time of the inventory count. That trailer full of product sitting at the back door of the store – did the inventory service count it? If they didn’t count it did you add it to the physical count number you got? Is it part of the store inventory as soon as it leaves the vendor/warehouse or does the store have to receive the product (systemically) before it hits their inventory? These are all questions that you need to consider for every type of inventory movement in your supply chain.
What about sales cut-offs? Do your sales/inventory systems record on a daily, or weekly, or monthly basis? Do you roll your sales back to the beginning of the week, end of the week, or can you track sales/inventory on a daily basis? You need to answer these questions when you have inventory counts done mid-week or any other day that is not the end/beginning of your fiscal week.
RECONCILING ITEMS
What else causes the big swings? Do you send a price file to the count service to use during the inventory? Is the price file the most current file that matches the items in the store? Do you count at cost, full retail, discounted retail? Do you have excessive amounts of items “not on file” or noted with a “zero retail”? Make sure any data files that you send to the service are the most current and include all updates sent to the stores. How do you handle direct vendor deliveries into your store? Did a vendor stock your shelves and you have not entered the paperwork into your inventory system? Has a vendor recently removed aged merchandise from your shelves? Did a department in your store transfer merchandise to another location without recording the paperwork? Has merchandise been removed from the shelves by associates and dumped in an unmarked box that never gets counted? What about display items? Did you have them pre-counted or was the count crew supposed to get those? All of these items can build that pendulum swing and have you chasing your tail in no time.
Before you can analyze the shrink results, you need to make sure you have tight cut-offs in place and identified every reconciling item in your supply chain to get to an accurate shrink number. If the numbers show a pick-up or tremendous loss, then check your cut-offs and reconciling items. Get buy in from your logistics, operations, and finance groups on these issues. Make sure everyone understands their roles and responsibilities in the process. The problem may not be the inventory crew – it might be you. A sharp inventory service can help you identify potential issues when they do their pre-inventory walk through. Also, ask them if they would be willing to sit down with your Finance group to identify possible issues on their end and work with them to tighten up the reconciliation process. The count is just the beginning, don’t blow it with poor controls and inadequate processes.