If your inventory control team isn’t completing the process of researching variances and taking corrective actions, then you aren’t controlling inventory. This should leave you feeling uneasy since your team can’t validate the variances, explain their causes, or take effective steps to prevent the same problem from recurring tomorrow.
Counting inventory to compare book-to-physical counts is only productive if the team is also researching the larger variances and taking corrective actions, a process very few wholesalers prioritize to complete. We know the research function in inventory control is time-intensive and often put on the back burner when your team needs to do other non-inventory duties. We also know that NOT completing the variance reconciliation process increases the probability of theft/errors and contributes to the inventory process taking longer (the causes of the variances are not eliminated and the variances are not decreasing).
In our experience, counting to determine the variances is the minimum requirement to get to the main part of the inventory control process – the corrective action phase. This involves researching variances to determine what caused the variance and then taking corrective action to prevent the variance from recurring. By doing this, the inventory team is continually eliminating causes of inventory variances, and inventory control becomes tighter.
To address the problem of not completing the variance reconciliation process, wholesalers need to take the following actions:
1. DEFINE AND PRIORITIZE THE STEPS NEEDED FOR VARIANCE RECONCILIATION
Make sure you have an “actions needed” process to identify and fix recurring causes of inventory variances.
2. BASELINE AND REDESIGN THE INVENTORY TEAM’S JOB RESPONSIBILITIES
Determine how much time the inventory counting team needs to complete the entire variance reconciliation process for variances above your predetermined tolerance level, and redesign their jobs so they have the required time and aren’t being pulled away by their other non-inventory duties.
3. VERIFY YOUR STAFFING.
Ensure you have the right people with the right skills working on the inventory control team.
4. PROTECT THE INVENTORY TEAM FROM GETTING POACHED.
Don’t allow warehouse management to pull the inventory team out of the inventory process to perform other tasks.
How Prioritizing Corrective Action Will Help the Wholesaler
☑️ GET THE RIGHT PROCESSES IN PLACE
Most inventory variances are caused by the absence of needed processes or by the current process not being followed.
☑️ IMPROVE THE INVENTORY TEAM’S PRODUCTIVITY AND EFFECTIVENESS
Eliminating the recurring causes of variances allows the book-to-physical inventory counting to be tighter. Eventually, only the smaller, one-off variances will exist because the causes of larger variances have been eliminated, and the team will have more capacity to research and address the remaining variances.
☑️ MAKE THE NUMBERS MORE RELIABLE AND MEANINGFUL
When the wholesaler knows that the inventory reconciliation process is consistently being carried out, they will have greater confidence in the inventory variance information they are receiving.
Failure to get through the corrective action phase means that variances will continue to exist due to repeated problems that are never corrected. If your total inventory variance is low, there is a high probability that you have a major inventory control problem. To put this into perspective, it’s mathematically improbable for a wholesaler to sell 5M cases of product and only have 1000 cases of unaccounted-for variances each year.