Why Inventory Reconciliation and How To Do It For Retail Businesses in Kenya

March 11, 2024
Posted by: simba001
Category: Business Insights

Inventory reconciliation is the process of counting your stocks physically and then counter-checking with system stock to confirm that the numbers tally or not.

Why Do Reconciliation of Inventory:

The process of inventory reconciliation is one of the most critical measures to ensure that your stock counts are accurate and your shrinkage is minimal. It allows you to see if the numbers in your retail point of sale software are correct and current. You are also able to have an accurate assessment of your stock as an asset.

Reduce and Remedy Any Shrinkage

The more accurate your inventory reconciliations are, and the more often you conduct them, the faster you can discover any discrepancy issues. Once those issues, if any, are found, retail owners can begin to root out why exactly their physical counts are not reconciling with the numbers in their system.

Avoid Having Items as Out of Stock (Stock Outs)

By doing more frequent counts, you can clear up any confusion or discrepancies in your stock. That way, you’ll reduce the chance of running into a stockout where you’re unable to provide your customers with the products they want to purchase. Stock outs cause a bad impression to customers and may lead to irreversible loss of otherwise loyal repeat customers.

Get A Better Idea of Total Stock Assets

Inventory is expensive! It’s impossible to keep an accurate balance sheet or ascertain the real value of a business without knowing the actual inventory counts. As such, reconciliation should be performed before any reports are prepared to evaluate a retail business.

How To Reconcile Inventory / Stocks

You have some options when it comes to checking your inventory counts. Depending on the size of your business, the type of products you sell, and the total store space, you can try the following:

Physical/Full Inventory Count

Just as it sounds, full inventory counts require a staff member, or typically a team of staff members, to count every single piece of inventory in your store and storage area. Some retailers opt to do this during business hours. Others prefer to avoid messing with the sales flow or taking up space on the retail floor, so they wait until the shop is closed.

How Often To Do A Physical/Full Inventory Count?

Physical counts can be extremely tedious and time-consuming. Consequently, many companies will do a full inventory count only twice or once annually. This allows them to start their fiscal year with accurate financial figures.

However, retailers that are dealing with lost revenue due to shrinkage should consider doing counts more often. As previously mentioned, more frequent inventory reconciliation will help operators determine what problems they may have and how to fix them best. You can always adjust the cadence of your counts to balance labor costs with the need for reconciliation.

Cycle Count

Another popular method for inventory reconciliation is cycle counting. This refers to doing counts of specific groups of items on a rolling basis. For example, you could pick a selection of item types, or categories and create a schedule for counting each of these groups over the course of a given period.

This allows retail businesses to do counting without having to shut down a store or ask employees to work overtime. In fact, cycle counting can be incorporated into an inventory reconciliation program that also uses full inventory counts. Counting the entire inventory would be a less frequent practice since cycle counts provide more up-to-date, frequent information on the state of your inventory.

How Often To Do Cycle Count?

Because this counting method is somewhat piecemeal, retailers can choose a more frequent cadence. Many businesses will do a cycle count on a weekly or monthly basis. Again, this depends on your warehousing, staffing costs, and count accuracy.

Figure Out Why You Have Inventory Discrepancies

Inventory reconciliation will alert you to any problems you have with shrinkage, theft-related losses, and inaccuracies. If you do run into issues, try to deduce if there are any patterns, recurring issues, or distinguishable factors that can narrow down what exactly is going on.

Are you finding discrepancies with the same product over and over? Do you have much more shrinkage in one retail location versus another? Looking at employee timesheets can help determine if there are corresponding patterns with inventory loss. Also, installing equipment like security cameras and performing random inventory audits can help you snuff out any fraud issues.