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Lost Warehouse Inventory? What to Do and When to Write It Off

No one wants to think about lost warehouse inventory, and it can be organizationally frustrating to determine the best process to find, research, and rectify inventory discrepancies. One of the primary reasons a company implements a warehouse management system (WMS) is to know the exact location of their inventory; if the inventory is not there, one might think it is easy to just write that inventory off the books. But the reality is rarely that simple. Accountants do not like big swings on the record books, and those swings have even larger implications to public companies.
Warehouse managers, on the other hand, have their own job to do: fulfill orders cost-effectively. Discrepancies between the physical and systemic inventory levels can make that job tremendously more difficult. Your organization can avoid this problem by following a few steps when it comes to lost warehouse inventory.

  1. Determine the Rules Based on Your Business Need

In today’s world, very few companies are forced to perform annual physical counts. This is because most companies follow a strict set of rules that were established (usually by accounting auditors) to ensure adequate inventory accuracy. These rules often use inventory velocity to prescribe a frequency with which items must be counted. It is critical for warehouse managers to know the rules so that their system can be configured accordingly.

  1. Automate Inventory Control to Reduce Errors

Automating inventory control processes is the simplest way to control inventory and reduce lost warehouse inventory. Processes that are frequently automated include: creating cycle count tasks based on a time interval, creating cycle count tasks based on triggers (like shorting a pick), creating a follow-up counting task when a quantity or value threshold has been exceeded, and automatically booking certain acceptable variances. Automation of these processes provide users the ability to act expeditiously and move on to other value-added tasks, rather than seeking out approval to act.

  1. Book Inventory Changes Immediately

If possible, variances below an acceptable threshold should be “booked” in the WMS immediately; which means that the variance is communicated to the financial system. These rules may differ depending on the quantity and value of the variance, which is different for every business. When delaying the booking until research can be completed, there is often a negative impact to the operation. Systems do not respond well to poor data, and postponing the booking of variances is like intentionally feeding your WMS bad data. For example, when a forward pick location has less physical than systemic inventory, the WMS may not trigger a replenishment that is required to fulfill orders, resulting in shorted picks. On the flip-side, if a location is found to have more physical inventory than systemic inventory, the next replenishment task could cause the location to exceed its capacity, spilling inventory into nearby locations or onto the floor, causing safety and accuracy concerns.

  1. Stop Hiding Inventory Pricing From Employees

Item pricing information may not be necessary for most WMS functions, but it is often very helpful when it comes to inventory control. Many companies keep all pricing information outside of the WMS in order to reduce theft or exposing what may be perceived as competitive pricing information. Rather than storing item cost (which may be competitive information) many companies store the suggested retail price at the item level and use that information to help drive inventory control processes. When possible, make this information accessible to decision makers, like floor or shift managers.

  1. Integrate Systems With Business Intelligence to Compare Database Information

If the pricing information you require is not available in the WMS for any reason, another option is to integrate your reporting with information from other systems to complete the write-off process. While this is better than not having price information at all, it will have the effect of reducing your level of process automation.

  1. Set Realistic Inventory Thresholds

Inventory thresholds include an allowed variance amount for inventory discrepancies; common examples include a percentage of units, quantity of units, and dollar amount. Creating realistic inventory thresholds will provide an objective view of inventory accuracy and aid in the write-off process. Compare what your WMS will support with what has been approved by your auditors. Before modifying your WMS to support the requirements, be sure to explain to the auditors what can be done to see if it is acceptable; it often is.

Use These Best Practices to Reduce Lost Warehouse Inventory

Thinking about lost warehouse inventory and taking steps to determine what to do when an item, case, or pallet of product goes missing will lessen the stress and workload. If you are uncertain about connecting databases together and using other tactics to develop an effective strategy for managing lost warehouse inventory, Veridian can help. Speak with a Veridian representative by calling 1 (770) 225-1750, or fill out the online contact form today.