How to Prepare a Percentage of Accuracy for Inventory
A vital part of inventory management is knowing how accurate – or inaccurate –your inventory system is. There may be many different ways to determine the percentage of accuracy for your inventory system, but most companies use one of three different methods: a financial perspective; a location perspective; or, an operational perspective. A financial perspective analysis is often useful for your balance sheet. A location perspective analysis can give you insights into your inventory systems strengths or weaknesses based on where the items are stored. An analysis from an operational analysis can be more useful for monitoring the inventory percentage accuracy for specific items or groups of items.
A financial perspective inventory analysis compares the value of the total inventory on hand to what has been recorded in your inventory system. The formula used is [1 - (value of variance/value of total inventory)*100 percent.
- Count the number of units in your warehouse and multiply them by their unit values.
- Multiply the number of units showing in your inventory system by their unit values.
- Subtract the value of the units on-hand from those in your inventory system, to get the value of the variance.
- Divide the value of the variance by the value of the inventory on hand. Subtract this number from 1 and then divide by 100 percent.
For example, suppose the value of each item was $1.00 dollar. You counted 95 units for a value of $95, but the inventory system says there are 100 units for a value of $100. This is a variance of $5.
1-($5/95)*100 percent = 94.7 percent accuracy.
A location analysis is useful when inventory is stored in multiple locations, such as different aisles or different bins in a warehouse, or different shelves in a store. The formula is similar to the financial perspective formula, but it doesn't take the value into account – only the inventory locations.
- Count the inventory in each location, such as warehouse bins or shelves in a store.
- Add the total number of locations containing an inventory error.
- Subtract the number of locations showing an error from the total number of locations. Subtract this number from one, and then multiply it by 100 percent.
For example, if you had 300 warehouse bins and two bins had an inventory error – regardless of how many errors were recorded for each bin – then the formula would look like this:
1 - (2/300)] * 100 = 99.34 percent
Analyzing inventory variance from an operational perspective gives yet another picture of your inventory control systems, often more granular. The formula is similar to the location perspective, except it can be used by specific items, usually identified by SKU numbers: [1-(variance in inventory for one SKU / total expected for that SKU]*100 percent.
For example, if your system reports you should have 100 items and you have only 97, then your formula would be: [1-3/100]*100 percent = 97 percent.