How is Inventory Record Accuracy measured?

Typically, for audit, financial and compliance reasons, the entire inventory located in physical stores and distribution centres should be "counted" once a year to ensure that the book stock records match / are adjusted to reflected the actual quantity in these locations..

Retailers can either choose to complete this undertaking using their own internal team, either a specialist audit team or the store or DC team themselves. Alternatively, they can use a third party such as RGIS, who will undertake the audits on their behalf and to their brief.

A hybrid approach is also available where stores will be supervised by / borrow the equipment of a third party specialist.

What is inventory record accuracy?

Specifically, inventory record accuracy considers whether the physical quantity found of a sku matches exactly the quantity recorded on the system at any point in time. For example, if the system record suggests that there are twelve cases of a sku, for example Gillette MACH3 4 count, but the auditors only find five cases, or they find thirteen cases, in both examples, the record is deemed to be inaccurate.

Complexity is added when the measure is viewed through the lens of value Vs item integrity. Here, retailers can be more interested in the net negative value of the variance, often called out as unknown loss or shrink.

Further ambiguity is added when interpretations are made on how to measure the variance, with organisations adapting metrics that define accuracy as a percentage found within a zone of +/- 2 units, or a monetary value.

The ECR Retail Loss Group believes that inventory record integrity, either the system and the physical inventory match exactly or they don't.

What is the difference between inventory record accuracy and shrink?

The ECR Retail Loss Group chooses to define Inventory record accuracy as the percentage of inventory records in any given location where the physical quantity exactly matches the quantity stated in the inventory system, or as some call it, the perpetual inventory record. Retailers acquire this data through an audit of the inventory where either the retailers staff or a third party conduct a physical count of the inventory they find in the store. Using this method, the retailers would count the number of inventory records with a variance, and compare them to the total number of inventory records in that location. In the ECR research, only 40% of inventory records were found to have an exact match.

Shrink or unknown loss is a number that can also be derived from the same audit data. Shrink or unknown loss is the variance between the total value of the inventory expected to be in the location and the actual quantity found at the count. The value of this variance, typically a negative, is then expressed as a percentage of total retail sales for the period between the time of the previous audit and this audit. Typically this variance is valued at between 1-3% of sales valued at retail.

So the differences are:

  • Shrink or unknown loss is typically viewed as a financial value while inventory record accuracy is looking at unit integrity
  • Shrink or unknown loss is mostly viewed relative to sales while inventory records are looked at relative to number of records

What they share are the reasons that explain the variances, wrong deliveries, pick errors, loss and theft in transit, receiving mistakes at the store, misplacement in the back room, damage and spoilages not recorded, wrong counting, theft from staff, third party vendors and non paying customers, errors at EPOS, errors with returns and wrong transfers. There are more reasons but broadly, the causes are the same.