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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.

Cycle Counts

Cycle counts are done more frequently for a selected amount of your inventory in each cycle. You don’t have to pause your complete supply chain during the cycle count; however, the cycle count doesn’t give you the whole picture of your inventory record in a snapshot.

ABC Analysis

In ABC analysis, you group the products into high, medium, and low-value items. This method also helps you to organize your warehouse and classification of the products.

You can also classify the products according to the volume of their sale. You can perform more frequent audits on the high-selling items as compared to the slow movers. It also helps you identify and get rid of the dead stock.

Spot Check Analysis

In this method, you physically count only a single or few products in your warehouse and compare it with your accounting records. It can detect the problem with your record-keeping without getting in the hassle of a complete physical count.

Freight Analysis

Freight analysis helps you determine the shipping costs to different locations. You can adjust the shipping fee accordingly to keep the optimum level of profits. It also helps in providing information about any lost in transit items.

Cost of Finished Goods Analysis

It helps in keeping your accounting record straight for the current accounting period. It is used by manufacturers and producers only. By doing the cost of finished goods inventory analysis, businesses can better understand the value of current inventory and record its value as an asset on the sheets

Inventory Reconciliation

Inventory reconciliation is more like detective work to find out the discrepancies in your inventory audit and your books. You can find these differences by tracking certain SKUs or by doing freight and cost of finish goods analysis.

Inventory Audit Best Practices

Regular Intervals

Being consistent in the inventory audit always helps inefficient inventory management. An audit in every sales quarter is highly recommended for eCommerce businesses.

Double Check Your Audit

Always double-check your inventory audit, using barcodes and SKU numbers makes it easier to count. Use a combination of physical inventory audit and spot-check inventory audit strategy simultaneously. You can always consult a professional external auditor to help with your internal auditing team and reconciling the numbers.

Outsourcing to the Third-party Logistics

Outsourcing your eCommerce fulfillment to a professional third-party logistics (3PL) company like ShipBots can help you increase the efficiency of your inventory management process and order fulfillment. With the right technology, cloud-based platform, resources, support, and facilities, you can significantly improve the accuracy of your financial records and eliminate any shrinkage or inventory loss.

At ShipBots, we use our customizable inventory management portal to study past trends and enable you to make data-driven decisions. We help our clients effectively forecast customer demand and offer fulfillment solutions at competitive fulfillment pricing. To learn more about how we can help you in achieving an optimized inventory management process, contact us here.