Inventory Disputes: Reasons and How to Avoid Them - ChicagoShipper

Inventory tracking throughout the e-commerce supply chain appears to be a simple process, but because inventory is constantly moving, it is not uncommon for inventory to be misplaced, lost, or stolen. 

With the right systems and processes, inventory can be tracked efficiently, but inventory tracking is only half the battle. It is also important to maintain accurate inventory records by establishing a strong inventory adjustment process. 

During this process, you often need to play a detective to reach the root cause of inventory discrepancies that can be caused by a variety of factors. 

We’ll be discussing the reasons for these discrepancies and the things that can be done to avoid these errors to prevent profit loss. 

Inventory Discrepancy Meaning 

The term “inventory discrepancy” refers to a situation in which the amount of inventory on hand differs from the current inventory records. 

Inventory level discrepancies are a common situation, but profits can be lost, so it is important to have a system to track, record, and improve the inventory adjustment process. 

Inventory Discrepancies Reasons 

Inventory errors are all too common. By taking the time to understand the root cause, you are ready to reduce the large fluctuations that can be detrimental to your profits. The main causes of inventory discrepancies you need to know are: 

  • Inventory Reduction 

Inventory reductions are often caused by accounting errors, theft, or fraud. To mitigate risk and prevent inventory shrinkage, it is important to implement the following loss prevention tactics such as employee training and improved warehouse security. 

  • Inventory Loss 

Physical inventory can be lost or misplaced due to human error. This can happen during the receiving or fulfilling process. 

Your inventory may be incorrectly labeled, stored in the wrong location, or confused with another SKU. The supplier may even ship the wrong amount of product than the invoiced amount. Establishing a rigorous warehouse receipt process is essential to avoid inventory losses. 

  • Inadequate Return Management 

The process of reverse logistics is just as important as the processes of initial fulfillment and last-mile delivery. If you’re seeing an increase in inventory discrepancies, it’s possible that poor returns management is to blame. 

Returned items may be damaged in transit or must be disposed of. Due to  the different ways in which returns are processed (replenishment, donations, disposal, etc.), keeping an up-to-date record of how to process returns can significantly reduce inventory discrepancies. 

  • Ineffective or Obsolete Technology 

Old-fashioned technology is more harmful than good when it comes to reducing inventory volatility, especially for companies looking to expand quickly. Traditional inventory tracking systems that continue to use manual processes are error-prone. 

For this reason, it is important to implement an automated warehouse management system so that inventory can be tracked accurately in real-time. 

  • Employees with Insufficient Training 

Discrepancies are more likely to occur if all employees are not properly trained on how to receive, store, manage, and track inventory. 

Although having the right technology in place is critical, human error remains a significant risk in the absence of proper employee training. Employees can manage large volumes of inventory more efficiently when simple processes and workflows are in place. 

Also, when employees understand how inventory is managed throughout the supply chain, they can manage discrepancies and make improvements accordingly. 

Inventory Discrepancy Prevention 

Inventory accuracy lowers the risk of supply chain issues like incorrect customer orders, product shortages, theft, damage, and financial loss for your company. 

Inventory discrepancies can occur if you are responsible for storing multiple SKUs together. That does not mean that there is no way to reduce the risk. The following are best practices for avoiding major inventory discrepancies. 

  • Coordination with Suppliers 

Good relationships with suppliers can make all the difference when it comes to achieving good inventory management. 

By sharing pipeline inventory updates at every step, suppliers can better plan when they will receive and how much they can expect from each SKU, ensuring correct and timely inventory. 

In the long run, strong communication with suppliers not only avoids inventory discrepancies, but also helps reduce out-of-stock, overstock, and lost inventory. 

Even if your supplier dispatched the incorrect goods or quantities, you will be able to identify discrepancies right away thanks to transparent and open lines of communication. 

  • Ensure Your Inventory Management Systems are All Up-to-Date 

In today’s rapidly changing retail landscape, outdated technology systems will undoubtedly be holding you back and limiting your company’s productivity. 

  • Proper Staff Training 

Inventory planning, warehouse setup, and warehouse receiving, as well as effective stock counting and digital inventory recording, should all be covered in skill-building sessions for your staff. 

Take this opportunity to communicate how inventory discrepancies are directly and indirectly impacting, including impacts on promotions, salaries, employee profit-sharing, and more. Recognizing best practices can reduce human error. 

  • Partner Up with a Third-Party Logistics Company 

In logistics operations, mistakes (even small mistakes) can lead to great confusion. Inaccuracies, inefficiencies and errors can not only hurt profits, but can also negatively impact the customer experience. 

A 3PL provides greater control by handling and automating your inventory management process, while also optimizing costs and saving you time. 

Contact us now at Chicago Shipper so we can help you with your e-commerce business!