Intro to Inventory Audits


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An inventory audit compares your actual inventory to your accounts in order to keep your financials straight. It plays a vital role in the budgeting and the financial road map of your company. Inventory audits can be done internally by your own staff or you can hire an external auditor to match your inventory with your accounts.


For a brick and mortar store, inventory auditing can be as simple as physically counting your products off the shelves, but it is rather complex in the eCommerce business. You have to take into account the stock in transit to and from your warehouse, which makes inventory auditing even more important for an eCommerce business. An inventory management system can help you track the ins and outs of your stock, making your inventory audits more accurate and efficient.


Why Inventory Audits are Important for Your Business?


Inventory audits are crucial to the order fulfillment process, as they help identify inventory issues, optimize stock levels, and help facilitate budgeting decisions.


Identifying Inventory Issues


An inventory audit gives you a clear picture of your current inventory situation. It also helps in identifying any crucial inventory issues like inventory shrinkage and backorders.


When the pandemic hit in 2020, it caused a major delay in global manufacturing and distribution causing major backorder issues for many eCommerce businesses. Efficient inventory management with the help of inventory audits can help you reduce the risks of backorders.


Regular inventory audits can also help you identify the issues with your stock and reduce the rate of inventory shrinkage for your business.


Optimizing Stock Levels


Inventory audits give you a better idea of the stock levels of any particular SKU within your warehouse and eCommerce fulfillment centers. You can plan and manage your inventory levels in order to avoid under or over-stocking situations. You can also identify the seasonal trends and predict the future demands with the help of an audit report. It also helps in feeding the accurate number in your inventory management software.


Better Budgeting & Financial Decisions


Inventory audits help you make key financial decisions for your business by giving you a better picture of your accounting records. It provides you the information on the incoming and outgoing inventory so you can analyze the performance of each SKU. It keeps you from investing too much in a slow-moving item or maintaining too much safe stock. With more accurate numbers on your books through audits, you can increase your business performance, efficiency, and profitability.


How Do You Perform an Inventory Audit?


There are different methods to conduct inventory audits that you can choose for your eCommerce business.


Physical Inventory Count


Physical inventory count is a more common and classic way to count and record the exact amount of physical inventory available in your warehouse. Normally it is done through a bar code scanner to record it electronically. If you are using an external auditor you can match the records with your in-house physical count to remove any discrepancies in the data.


A cut-off analysis is pausing the inward and outward movement of your inventory to make the physical count more effective. It is important to complete the process of a cut-off analysis physical count quickly because you don't want to delay the shipment to your customers.