Inventory reconciliation: 6 improvements you can make now

As any supply chain professional well knows, inventory discrepancies remain one of the biggest factors causing delayed shipments and poor customer experiences.

Many companies still have issues with this, yet continue to manually track inventory.

The thing is, supply chain management processes are only getting more intricate, and more digital—and will continue to do so.

Within all of this, it’s important to draw some attention to inventory reconciliation. It remains a crucial part of completing orders and shipping them to customers on time.

Here, we’ll give an overview of inventory reconciliation and look at how e-commerce and retail companies can better approach the process.

What is inventory reconciliation?

Simply put, inventory reconciliation is the act of comparing and aligning your inventory records to your actual, physical inventory on hand.

Why is inventory reconciliation important for ecommerce and retail companies?

For ecommerce and retail companies, inventory reconciliation goes well beyond just balancing numbers—it’s crucial for a few different reasons.

Above all, it helps identify any discrepancies between your data and what you actually have in stock.

If you have enough transparency into the supply chain process, however, you’ll also be able to see why specific discrepancies occurred, and better understand how to fix 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.

Whatever the case, it’s a matter of driving continuous improvement. Since the supply chain has so many different working parts and people—changes occur incrementally.

If you want your inventory reconciliation process to be a driving factor behind continuous improvement, make sure to have frequent, consistent inventory reconciliations analyzing both personnel and your supply chain tech stack.

Why is inventory reconciliation so challenging?

The biggest challenge with reconciling your inventory is often the amount of manual effort and time required to complete the job—thanks to the volume of data involved, and the lack of standardization it’s usually presented with. Not to mention, brands with multichannel strategies have to take in data from numerous selling platforms and factor that into the equation as well.

Data Volume

You have both ingoing, outgoing, and in-transit inventory. There are a lot of products flying around, and therefore a lot of data flying around.

With products that are so fast-moving, your data needs to be as well. If that data is not kept up-to-date, it’ll be nearly impossible to have a clear view of what’s actually in stock.

Lack of Data Standardization

With standardized practices in place, all of your partners are going to relay information to you in completely different formats, on different cadences.

In these cases, your reconciliations are likely to be more error-prone.

For one, it’ll be hard to recognize if you even have all of the data you require. Additionally, the manual effort needed to format, organize, and analyze this data takes a great deal of time.

How often should you reconcile your inventory?

The short answer here is, as much as possible—though we know that can be very difficult. So, given your needs and ability to do so, the answer can vary quite a bit.

Above all, the most important thing is consistency.

While different periodic intervals can work depending on your business’ needs and shipping volume, you should ensure that reconciliations are happening as frequently as you can manage, on a planned, consistent basis.

How can you improve your inventory reconciliation process?

Generally, you should be aiming to make your warehouse operations as smooth as possible to reduce errors, make all of your supply chain operations more predictable, and cater to continuous, consistent improvements.

There are a variety of things you can do to make that happen.

1. Automate.

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

Take time to research and invest in inventory and warehouse management systems, as well as other workflow automation tools.

These tools will allow you to constantly pull in updated data across procurement, inventory on-hand, shipping, and so on.

On top of keeping your data fresh, these tools will also help you 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 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.

Centralized systems connect all of your data to all of your teams at all times.

Your IMS or WMS may handle some of these needs. 

If you’re moving large volumes of inventory, or working with multiple warehouses or 3PLs, you may also want to utilize additional workflow tooling.

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

That helps 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. Standardize the process.

Standardizing your inventory reconciliation process will lead to consistency and accuracy, while adding another way to identify disruptions in the supply chain more specifically.

A standard operating procedure (SOP) can serve as a top-down modal that instills accuracy and efficiency into how the inventory reconciliation process should be carried out.

With the right automations and workflow tools in place, you’ll have the foundation of data to standardize:

• Training: Are employees informed on the SOP of reconciliation inventory?
• Data Retrieval: Is there consistency in how data is recorded across all products, suppliers, warehouses, 3PLs, and so on?
• Reporting: How often is data updated? How should it be presented?
• Manual Processes: Are all warehouses and warehouse employees abiding by the same scanning and tracking procedures?

Over time, your SOP will help you monitor and make continual tweaks to optimize reconciliations.

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 down to the roots.

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.

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.

Tracking down to the roots 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.

• Incoming: Make sure you have a streamlined returns process and procurement process.
• Outgoing: Make sure you have a clear view of your orders and any possible shrink.

Utilizing Workflow Automation Tools

Workflow tools like Parabola stand to benefit you across all inventory management operations—especially with automating and standardizing your inventory reconciliation process.

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.