Maintaining an accurate record of every item in a warehouse is fundamental to keeping your business running smoothly. When the figures in your inventory records don’t match the items on your shelves, your operations become burdened with shipping delays, stockouts, lost revenue and excessive staffing costs.
This guide explains the causes of stock discrepancies, how they affect your business, and what you can do to keep your multichannel operation running smoothly.
Key takeaways
- Stock discrepancies occur when your recorded inventory levels do not match the physical items on your shelves, leading to overselling, shipping delays and inaccurate financial reporting.
- Most discrepancies are the result of supplier oversights or staff errors during the receiving, picking and returns processes.
- Inventory management software and barcode scanning technology drastically reduce stock discrepancies by providing a single source of truth and real-time visibility across your entire warehouse.
What are stock discrepancies?
Stock discrepancies occur when a business’s recorded inventory levels do not match the physical stock in its warehouse. They also arise when the recorded value of that stock differs from its actual financial worth. Here are some common examples of stock discrepancies:
- Quantity: When a digital record shows 100 units of stock when only 95 exist in the warehouse.
- Unit cost: When the total inventory value on the balance sheet is incorrect. For example, when a business correctly records 50 units of a product, but at a cost of £20 per unit rather than the actual cost of £15 per unit.
- Damaged goods: When unsellable products remain on the system at full retail value. While the quantity matches, the realisable value of that stock has dropped, creating a financial discrepancy.
- Location: When the system records 10 units in one warehouse and none in another, but the physical units are actually shared across both warehouses.
- Unit volume: When a system records inventory in individual units but the physical stock is stored and counted in cases or packs, leading to inflated or deflated stock figures.
- SKU: When an item is physically present but has been recorded under the wrong SKU or product category, causing a surplus in one record and a deficit in another.
How can stock discrepancies affect your business?
Stock discrepancies create problems that extend beyond the warehouse floor and into every area of a retail or wholesale business.
When your system shows more stock than is physically available, you risk overselling products on your sales channels. This leads to cancelled orders, shipping delays, and negative customer reviews. Conversely, when your records show less stock than you actually hold, you may miss out on potential sales or spend capital on unnecessary replacement stock.
Inventory discrepancies also drain your internal resources. Staff must spend significant time manually investigating where things have gone wrong, which diverts labour away from strategic planning, fostering relationships with suppliers and fulfilling orders – in short, the tasks that help your business grow.
Because inventory represents a significant asset on your balance sheet, inaccurate data puts your financial reporting and tax compliance at risk. Any discrepancy in quantity or unit value makes it difficult to calculate accurate gross profit margins or make informed purchasing decisions. If your system cannot report the true worth of your stock, you cannot maintain transparency to your customers or to HMRC.
Common causes
Stock discrepancies are usually the result of small, cumulative oversights across different stages of the supply chain. Staying informed about the common causes could be the difference between scaling your operations effectively and struggling to fulfil orders.
Human error during receiving
When new stock arrives, mistakes often happen during the initial count or while entering data into the recorded inventory. If a staff member miscounts stock, the system will reflect a different figure to what is physically on the shelves. Discrepancies also occur if items are scanned under the wrong SKU or product category, leading to balanced totals but incorrect individual records.
Mismanaged returns
Customer returns are a frequent source of stock inaccuracies. If a returned item is placed back on a shelf but isn’t recorded in the inventory, the physical stock number will be inaccurate. Conversely, if an item is marked as returned and sellable but is actually damaged or disposed of, the system will report stock that does not exist.
Picking and packing mistakes
During busy periods, items may be picked in the wrong quantities or from the wrong places, leaving a discrepancy in the inventory record that is often only discovered when an order cannot be fulfilled.
Supplier shortfalls
Suppliers may occasionally ship fewer items than stated on the delivery note or include the wrong products in a consignment. If your team assumes the paperwork is correct and updates the inventory without verifying the contents of every box, your stock numbers will be incorrect.
Unrecorded stock movements
If stock is moved between locations or departments within a business without this being recorded, staff will look for stock in the wrong places. While the total quantity across the business may be correct, the location discrepancy leads to confusion, delays and potentially missed orders.
How to check for stock discrepancies
To check for stock discrepancies, you need to conduct regular and diligent stock takes to compare your digital records with the physical stock in your warehouse.
Traditionally, businesses would conduct these checks manually, often pausing operations to count their entire inventory at once. While this provides a snapshot for annual accounts, it leads to significant downtime and potentially new errors as staff rush to resume shipping while handling a huge administrative load.
Another option is cycle counting, which involves auditing a small, predetermined subset of your inventory every day or week. This continuous approach ensures that your entire warehouse is checked over a set period without the need to halt production.
Retail and wholesale businesses are also optimising their stock takes using inventory management software. This technology replaces paper lists with mobile tools that allow staff to perform stock checks in real time.
By providing a centralised view of every warehouse and sales channel, digital inventories make it easier to identify discrepancies. Rather than waiting for a year-end audit to uncover a stock issue, staff can resolve issues as soon as they appear and before they impact the wider business.
How to prevent stock discrepancies
Preventing stock discrepancies starts with conducting regular stock takes, training staff to spot the signs of discrepancies, and implementing strict stock intake procedures. Staff should verify every shipment against the original purchase order, establish a dedicated area for returns and damaged goods, and standardise how internal stock movements are logged.
Many businesses are using inventory management software to digitise this process. When every sale, return and delivery update can be observed across the entire business – including across all integrated sales channels – your inventory records will always reflect what’s on your warehouse shelves.
Implementing HHT and barcode scanning technology also reduces stock discrepancies by allowing staff to scan items during the picking and packing process. This updates the central database automatically, ensuring the right item is selected for every order and preventing costly errors.
Visit us to see how ERP and inventory management software can help you eliminate stock discrepancies and streamline your operations.
FAQs
How do you reconcile inventory discrepancies?
Reconciliation is the process of adjusting your records to match the physical stock found during a count. Doing this manually involves updating spreadsheets and checking delivery notes or receipts to investigate discrepancies. However, with inventory management software, your balance sheet updates automatically and logs the exact time and reason for the adjustment.
How often should a business perform a stock take?
While a full manual stock take is typically required once a year for financial reporting, many complex businesses perform daily or weekly cycle counts. This approach allows for smaller, more manageable audits of high-value or fast-moving items, ensuring that discrepancies are resolved before they impact customer orders.
What is the difference between a physical count and book stock?
Book stock is the theoretical amount of inventory that your system or records say you should have, while a physical count is what is actually on the shelf. The difference between these two figures is your stock discrepancy.
Is inventory management software easy to integrate?
While the thought of connecting new systems can seem daunting, modern solutions are built to connect seamlessly with your current processes. Khaos Control uses APIs and native connectors to integrate directly into platforms like Shopify, Amazon and Xero. This allows data to move automatically between your warehouses and sales channels, removing the need for complex data migration.