‫جــامـعـة طـرابـلـس‬

‫إدارة الدراســات العـلـيــا‬

‫قــــــســـم اإلدارة الهــــــــنــــــدســـــيــــة‬

‫‪Inventory Record Accuracy‬‬

‫مقدم من الطالب‪:‬‬
‫تاج الدين رمضان عون‬
‫اشراف الدكتور‪:‬‬
‫د‪.‬البهلول ابوقرين‬
Introduction
What Is Inventory Record ?

Inventory records are hard copy or electronic documents that reflect how much
and what kind of inventories a company has on hand, committed (allocated) to
work-in-process, and on order

What Is Inventory Record Accuracy?

Inventory Record Accuracy(IRA) is a measure of how closely official inventory

records match the physical inventory.

By keeping accurate and complete records of each transaction, we

know where and how much we have at every point in the process.
 The importance of record accuracy
The Need For Accurate Inventory Records
Financial Statements
Financial Planning Both internal parties (management) and external parties
(shareholders and tax authorities) are consumers of this
Marketing and Sales Planning information.
know exactly what can be sold to customers.
 The importance of record accuracy
The Need For Accurate Inventory Records

Financial Planning

Marketing and Sales Planning timed to roughly coincide with projected depletion of the
old product inventory.
Inaccuracies can no longer be hidden by extra stockholding
New Product Planning Knowing what inventory is on hand and on
allows
order, a companythe
to determine to utilize
quantityitsand
people and of
schedule
production
future facilities more fully because
procurements
Procurement Planning shortages can be predicted before materials are
physically staged
Production Planning
 The importance of record accuracy
Causes of inaccurate records
There are several known causes of inventory inaccuracy (Gruen & Corsten, 2007; Kang & Gershwin, 2007; Waller, Nachtmann,
& Hunter, 2006).

 incorrectly manually adjusted by employees.

 products can be stolen

 damaged or spoiled products, when not recorded as such,

 returned products that occasionally not accounted

 a store can receive mis-shipments from the distribution center

 cashier error
The importance of record accuracy
 Kang and Gershwin (2005) note inaccuracies in 51% of the records used
by one retail firm and claim that the proportion of inaccurate records
ranges from 30% to 80% across stores,

 In a 2007 study of warehouse management success factors, the Aberdeen

Group identified that the adoption of cycle counting was one of 5
characteristics correlated most strongly with “best-in-class” performance.

 2008 study conducted by the University of Chicago. Their research found

that a whopping 65% of the 370,000 inventory records they studied from 37
different retail stores contained errors.
 Tolerances and Measures of Accuracy

questions that every manufacturer has to answer Physical Inventory Tolerance

P/N Hit Miss
count record (%)
1 94 100 ±2 X
2 95 100 ±5 X
1. What are we going to make? 3 96 100 ±5 X
2. What does it take to make it? 4 97 100 ±2 X
5 98 100 ±2 X
3. What do we have? 6 99 100 ±2 X
4. What do we have to get, and when? 7
8
100
101
100
100
±0
±0
X
X
9 102 100 ±5 X
10 103 100 ±2 X
11 104 100 ±5 X
12 105 100 ±5 X
13 106 100 ±0 X
Accuracy is not always absolute. 1300 1300
Tolerances and Measures of Accuracy

Criteria for Setting Tolerances

➤ Usage
➤ Dollar value
➤ Lead time
➤ Level in the bill of material
➤ Criticality
➤ Method of handling
➤ Combinations of the above
 How to measure accuracy
Physical Inventory Tolerance Discrepancy unit Discrepancy
P/N Accuracy value
count record (%) % cost ($)
1 94 100 ±2 -6 0.94 10 -64
2 95 100 ±5 -5 0.95 2 -11 Financial
3 96 100 ±5 -4 0.96 6 -25
4 97 100 ±2 -3 0.97 13 -40
measurements
5 98 100 ±2 -2 0.98 8 -16
6 99 100 ±2 -1 0.99 14 -14
7 100 100 ±0 0 1.00 7 0
8 101 100 ±0 1 0.99 17 17
9 102 100 ±5 2 0.98 16 31
10 103 100 ±2 3 0.97 6 17
11 104 100 ±5 4 0.96 13 50
12 105 100 ±5 5 0.95 9 43
13 106 100 ±0 6 0.94 2 11
1300 1300 8/13=0.615 0.97 0

Value discrepancy = Unit stock value* (Quantity on record - Quantity in stock)

An inventory record accuracy based on the dollar value is not recommended
 How to measure accuracy

Accuracy
Class Tolerance (%)
Tolerance (%) No of item included Accuracy(%) target
A 1 95
B 2 90
Exact 1 8
C 5 80
±2 2 15
±5 11 85
± 10 13 100

set targets that can be achieved in the next few months, and
then gradually tighten the targets.
Methods For Improving Accuracy

To improve inventory record accuracy,

the error creation rate must be less than
the error removal rate.
Methods For Improving Accuracy

Physical Inventory

In a physical inventory, normal operations cease while a physical count of

every item is conducted. The counts are compared to inventory records and,
when necessary, the records are corrected.

if you were to perform annual inventory checks, then

you will find errors, but would have no idea whether
errors occurred a week ago or eleven months ago
Methods For Improving Accuracy

Cycle counting
Cycle counting is a proven method to monitor and check inventory accuracy on a
continual basis
Replacing annual physical inventories
Goals of cycle counting are:
1. To identify the causes of errors,
2. To correct the conditions causing the errors,
3. To maintain a high level of inventory record accuracy, and
4. To provide a correct statement of assets.

(through the proper use of cycle counting, inventory record accuracy above 95% can
be consistently maintained) Brooks and Wilson (2004)
Methods For Improving Accuracy

Methods of cycle counting

 aisle to aisle counting

this is simple to organize, as counters start at one end of the stores and
gradually work along to the other
Methods For Improving Accuracy

Methods of cycle counting

 aisle to aisle counting

 Random Sample Cycle Counting

 Methods For Improving Accuracy

Methods of cycle counting

 aisle to aisle counting

 Random Sample Cycle Counting

 ABC Cycle Counting

 Methods For Improving Accuracy

Methods of cycle counting

 aisle to aisle counting Category

Frequency of stock No. of items per No. of checks/
checks 1000 stock weeks

 Random Sample Cycle Counting A 4-monthly 100 8

B 6-monthly 200 8
C 1-yearly 600 12
 ABC Cycle Counting D* 3-yearly 100 1
Total 29

Limitations!
Use the cycle counting to sort out why the
records are going wrong
Three-Phase Approach to Improve Inventory Record Accuracy

Published by Roger B. Brooks & Larry W. Wilson

A flawed record-keeping process cannot maintain accurate records;

however, perform the process correctly, and you will have every
opportunity to succeed.

process integrity is an essential ingredient of record accuracy.

Three-Phase Approach to Inventory Record Accuracy

the most important of the three

phases

This phase designs the

operational blueprint for day-
to-day action on inventory
related activities.
If the tasks within each of these three phases are correctly
implemented, inventory record accuracy of 95 percent or
better is virtually assured.
 Inventory Accuracy As A Quality Issue

Record accuracy problem should be treated as a quality

problem and resolved using quality tools(brainstorming).
The Fishbone Diagram

Pareto Analysis
 Accuracy Through Information Technology

The development of computer-based records has enabled inventory

across an enterprise to be linked
Care should be taken to identify specifically what is to be achieved by new
technology,
• Input of transactions into the computer without
Benefits are maximized if the having them written out beforehand
procedures enable the following
• Fast and simple updating of records

• Computations by the computer, and not the inputter

• Automatic identification of exceptions and inaccuracies.
Accuracy Through Information Technology

The basic requirements for an inventory system, if there

is to be the chance of accurate records, are:

• Multi location options on the stock record

• allocation options
• transfers between locations
• ABC classification
• Real-time operation.
 Accuracy Through Information Technology

 Bar coding

 Weigh counting

 Monitoring manufacturing work in progress by automatic recording devices

 Radio frequency identification

improve accuracy should not rely upon information technology for answers.
Major improvements will be achieved through better control and procedures
before there is the need to spend significant amounts on technology.
 ‫اـاتـ‬
‫سمـ‬
‫عكـم‬ ‫اـرـ‬
‫شكـ لـحـسـنـ‬