Inventory reconciliation: 6 improvements you can make now

We all know the pain of a stockout: you’ve been craving that particular mac n’ cheese, or you need a re-up on your favorite socks. But when you get to the store, the shelf is empty, or the site is out of stock.

If you had to guess, how costly are stockouts: A few hundred million? Billions?

The percentage of desired items that end up being out of stock is estimated at 8%. That means that almost one shopping experience out of ten ends in disappointment, and the cost to retail businesses is on the order of nearly a trillion dollars a year.

There’s a simple solution — often time-consuming, but always necessary: inventory reconciliation. Let’s walk through what that process entails, why it can be so painful, and how it might be streamlined.

What is inventory reconciliation?

Inventory reconciliation is a chance to play detective by comparing your recorded inventory to your inventory on hand. This process might include a physical count, but can also focus solely on the different platforms that track inventory, sales, and financial planning.

Use Parabola to automate inventory reconciliation. Learn more here.

Inventory reconciliation (and inventory management reporting) have one basic goal: to identify discrepancies. Are your documents all telling the same story, or are they full of holes? Using a warehouse management system (WMS) or another source of truth, you can ensure that both customer-facing and internal counts are up to date.

Why is inventory reconciliation important for ecommerce and retail companies?

Beyond fixing discrepancies, inventory reconciliation gives a window into the supply chain process. Behind every number is a chance to dig into why discrepancies occur, and to take steps towards fixing them.

For example, you might identify that your warehouse team needs better training, or that your procurement team is lacking specific software tools needed to attain products in a timely manner.

Operations and supply chain processes can be huge growth levers for ecommerce and retail companies, but that requires visibility into what’s working, and what’s not. Consistent, careful inventory reconciliation can be an important way to get that visibility.

Why is inventory reconciliation so challenging?

As crucial as it is, reconciling your inventory is tedious. It typically requires a lot of time and effort, thanks to the vast amounts of data involved. And the more retail and fulfillment partners are involved, the more expansive and messy the data can get.

Data volume

It’s not just warehouses: Inventory reconciliation surveys ingoing, outgoing, and in-transit inventory. A brand might have hundreds or thousands of unique product IDs (SKUs) so you can take that already sizable number and effectively triple it.

With scores of products moving in and out, your warehouses need to be tidy, and your data does too. If your inventory is not kept up-to-date, it’ll be impossible to have a clear view of what’s actually in stock.

Lack of data standardization

Even with a standard operating procedure (SOP) in place, all of your partners are going to relay information to you in different formats, on different cadences.

This will make your reconciliation process more error-prone.

On a base level, it can be needlessly hard to recognize if you have all the data you need, in its most up-to-date form. Even once you have that data, the manual effort needed to format, organize, and analyze takes time — and every step increases the possibility for manual error.

How often should you reconcile your inventory?

The short answer: As much as possible. The longer answer is that, given your needs and capacity, your best solution might not look like someone else’s.

Different periodic intervals make sense for different kinds of business. If stock moves seasonally (swimsuits, for example), inventory reconciliation might happen in anticipation of peak periods. If a brand sells more consistently throughout the year, they’re probably on a set schedule that doesn’t correlate to order volume.

No matter how often you choose to reconcile inventory, you should ensure that the process is happening as consistently as you can manage — and that it’s done proactively, not reactively.

Simplify inventory reconciliation and reporting with Parabola

Simplifying inventory reconciliation can support supply chain leaders’ goals in more way than one. Overall, it will help reduce errors, make supply chain operations more predictable, and cater to continuous, consistent improvements. Although the inventory reconciliation process has a bad rap for being time-consuming and painful, it doesn’t have to be. Tools like Parabola can support you across every part of that journey.

Here’s a quick summary of how to improve your inventory management tracking:

1. Automate inventory reconciliation

If you’re able to automate your inventory reconciliation process, then it becomes an “always-on” function.

Parabola enables you to create automated workflows for inventory reconciliation, helping you identify mismatched records without manual effort. If you also take time to research and invest in inventory and warehouse management systems, you can build out and automate your inventory reporting—from ABC reporting, to days on hand reports, consolidations, reconciliations, and more.

You’ll have real-time visibility into performance across the supply chain, inventory records, and with ease, be able to compare that to what you have on-hand.

This is especially the case if you’re dealing with multiple 3PLs or warehouses.

Without automation, more warehouses means greater data volumes and less structure, which will only create more manual work, and ultimately, more discrepancies.

2. Invest in advanced tracking technology

It’s also important to streamline manual labor.

Equip your warehouse team(s) with barcode or RFID systems that allow for simpler, more efficient tracking of inventory movement.

By setting your team up with a clean, digital scanning process, not only do their lives become easier, but your data capture process will be much more streamlined, and more free of human error.

Generally, these systems allow for real-time data updates as items are scanned and stocked (or put into movement).

This is a crucial piece of the data-puzzle. 

If this data is properly fed into your IMS/WMS/workflow tools, you’re essentially relaying inventory data directly from a scanner to a report or dashboard, allowing for more consistent, more accurate reconciliations.

3. Centralize your data systems

As an extension of automation, you should also centralize your systems as much as possible, to give yourself a single source of truth to access and maintain inventory records: Import data from all your systems into Parabola, whether it’s an order and inventory management system or spreadsheets. By consolidating your information, you can easily track discrepancies and ensure accuracy.

Ultimately, centralized systems connect all of your data to all of your teams at all times.

Centralizing your inventory data will give all of your organization’s teams (supply chain or otherwise) visibility into inventory operations and performance.

This will help streamline recording and reporting, and foster better communication between your team internally, and between you, vendors, and suppliers.

With better visibility and communication, you’ll be able to tackle supply issues more efficiently, and have a deeper viewpoint into what needs to be reconciled, and what the root cause of any disruptions were.

4. Integrate an inventory management and tracking system

Pair Parabola with your existing inventory management and tracking system to enhance visibility across your supply chain. Whether you’re dealing with warehouses or retail locations, you’ll have a unified view of your operations.

This is key to centralizing your data and getting all of the benefits outlined above.

5. Refine your demand planning and forecasting methods

Forecasting and reconciliation are different sides of the same coin.

More accurate planning leads to less work later—with less whiplash, and less need for reactive behavior, reconciliations likely won’t require as much lift.

By automating your demand planning and forecasting and turning them into “always-on” functions, reconciliations should play out much easier.

Over time, your reconciliations and demand planning can actually work in tandem, with one another, instead being at odds.

6. Track key metrics with custom reports and run root cause analyses

Assuming you have the right tools in place, and therefore real-time visibility into the entire supply chain, you can also track problems down to the source.

And running a root cause analysis allows you to get down to the exact point where a hold up, error, or discrepancy occurred.

It’s what allows you to identify the “why” behind any issue.

With a tool like Parabola, you can build tailored dashboards for inventory management reporting to monitor stock levels, fulfillment accuracy, and trends. With real-time updates, you can make better decisions faster. Tracking down to the roots also helps you remedy the workflow itself, not just the disruption that took place. It’s what helps you make fixes that are permanent.

Run root cause analyses to find the weak links in both ingoing and outgoing inventory processes.

How to automate inventory reconciliation

Workflow tools like Parabola stand to benefit you across all inventory management operations—especially with automating and standardizing your inventory reconciliation process. It can essentially act as your inventory management tracking system.

Parabola makes supply chain management a much less laborious process, helping you centralize workflows, automate reporting, and set detailed SOPs for each of your workflows.

Whatever the case or the technology, however, the most important part is to continually optimize your inventory reconciliation process, as it stands to make a great impact on your delivery times, and drive consistently positive experiences for consumers.