Inventory Health - Important factors to be considered to avoid Inventory Mismatch
Any inventory of raw materials or finished goods runs into thousands of SKU items. Especially in case of Raw Material Inventory as well as Spare Parts Inventory these numbers could be much higher when compared to Finished Goods. Even in Finished Goods some products like clothes, grocery etc could run into thousands of SKUs across the entire range.
Every unit of Inventory has an economic value in the books of the company. Therefore as an asset one needs to have a control over the inventory and ensure that the books stock matches with the physical stock. By book stock essentially we mean system stock.
Inventory management on one hand consists of managing the inventory transactions and data in the system and on the other it involves physical processes on the ground. Both these have to work in tandem to ensure that all transactions are closed and completed both in the system as well as on the shop floor.
In a warehouse a typical day operations begin with receiving materials from different vendors, which are unloaded, counted and updated in the system. The system then issues a GRN and directs the location to which the material should be stored. Accordingly the material is then moved to the storage location and a confirmation back in the system closes the entire transaction. At the same time, parallel processes for shipment delivery will be under process where the system releases pick orders on the warehouse. Operations staff picks up the materials as per pick list and confirm back to the system, which then releases a packing order and an invoice for shipment. Amidst these multiple transactions there would be quite a few operational transactions like bin to bin transfers, kitting etc which are again transacted in the system followed by physical process and re confirmation to the system.
In such situation where multiple transactions both in system as well as physical operations are going on and the tasks are interdependent, any process deviation in any one of the transactions is bound to occur resulting in differences between system transactions and physical inventory.
Current trend in the industries is to outsource the warehousing operations to third party service providers, in which case the transactions increase manifold because of the introduction of additional system at the warehouse end, which belongs to the third party vendor. The principle customer maintains his inventory in his ERP, which transacts with the third party vendors WMS - Warehouse Management System and the Physical transactions on the shop floor, which have to run concurrently with the system.
Related Articles
- Inventory Inefficiency Factors
- Factors affecting Inventory Operations
- Challenges in Inventory Management
- Companys approach to Inventory Health
- Inventory Turnover & Inventory Health

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