My reply would be, for how long or at what cost, as eventually you will have to pay the toll?
The industry standard for inventory accuracy ranges from 64% to 98%. The statistics seem to indicate that inventory records tend to be less accurate in smaller businesses that in large ones. The probable reason is that small business tends to devote less resources to control their inventory records. The problem is that inventory accuracy is the foundation for all your purchasing decisions as well as to insure product availability to your customers.
So how do you measure your inventory accuracy? The standard procedure is:
1. Take the dollar value of sum of the positive discrepancies and add them to your negative discrepancies (add them as a total, do not net them out).
2. Divide that figure into your average inventory dollar value for the same period.
3. Subtract that from 100% and that is your inventory accuracy.
• Physical count shortages = $50.00
• Physical count overages = $50.00
• Total value of discrepancies = $100.00
• Average inventory in the period = $2,000.00
• $100 / 2000 = 0.05 = 5%
• Inventory accuracy 100% – 5% = 95%
It is normal that when you perform inventory transactions there is a chance of making mistakes: bad counts, typos, pilferage, etc. So, you need a way to correct those mistakes promptly before they impact your business.
The best way to maintain inventory accuracy is through cycle counts. However, you need to have a process in place to select which items you will be counting as well as how frequently do you plan to perform the cycle counts. You also need to find a period of time when inventory activity is at a minimum or ideally not taking place.
Another key factor element is to keep the counting process as simple as possible: use standard pallet sizes and heights, ideally with decimal quantities in them. Avoid having several packages opened of the same product, use counting scales when the items are small and quantities are large, etc.
And finally, make your personnel accountable of inaccuracies in their area of responsibility via incentives and rewards only for the best performer. Make it part of his performance review.
Applying these tools in three different companies that I managed in the past, allowed me to achieve inventory accuracies of 99.96%.