What is an Inventory Discrepancy and How Can You Avoid It?

Inventory discrepancy is an "invisible black hole" that devours corporate profits - the system shows that there is stock, but the actual warehouse cannot find it. According to statistics, global e-commerce companies suffer annual losses of up to 3%-5% of sales due to inventory discrepancy, and this proportion may double during peak seasons. Inventory discrepancy not only affects the company's financial management, but also disrupts the rhythm of the supply chain and leads to a decline in customer satisfaction.

As a professional international logistics warehousing and fulfillment service provider, Chinadivision will take you to deeply analyze the essence of inventory discrepancy and provide you with practical solutions.

What is inventory discrepancy?

Inventory discrepancy refers to the inconsistency between the inventory quantity recorded in the enterprise's warehouse management system (WMS) and the actual physical inventory quantity. This discrepancy may be manifested as more actual inventory than the system record (overstocking) or less than the system record (loss). In either case, it will bring potential risks and losses to the company.

There are mainly two types of discrepancies

Overstock: The number of goods displayed by the system is less than the actual available quantity.

Inventory shortage: when the system shows that the number of goods exceeds the actual number.

Both situations will cause confusion in fulfillment operations, leading to out-of-stock, delayed delivery or over-purchase problems.

What causes inventory discrepancies?

Human operational errors (accounting for more than 60%)

Warehouse staff may cause inventory record errors due to negligence or improper operation during the receipt, delivery, and inventory.

Warehousing errors: incorrect quantity recording, wrong SKU labeling, or incorrect placement of goods when receiving goods.

Picking and delivery errors: wrong, missing, or over-delivered items.

Inventory omissions: missing or repeated scanning during manual inventory.

System synchronization delays or failures

Software such as warehouse management systems (WMS) or enterprise resource planning systems (ERP) may have vulnerabilities or failures, resulting in untimely or inaccurate inventory data updates. When selling on multiple platforms, inventory data is not synchronized in real time, resulting in overselling (for example, Amazon and independent station inventory are not synchronized).

Cargo loss and theft

In-warehouse theft or natural loss of goods during storage (such as expiration, deterioration, damage, etc.) can also cause inventory differences. Theft by internal employees or external personnel (high-value electronic products, luxury goods). These situations are often difficult to detect, but they will cause considerable losses to the company over the long term.

Supply chain coordination issues

In the supply chain, poor information transmission or poor coordination between various links may also lead to inventory differences. For example, delayed shipments from suppliers, loss or damage of goods during transportation, etc., may cause the actual number of goods received by the company to be inconsistent with the number of orders. Delayed return processing and failure to update inventory status in time.

Cross-border logistics peculiarities

In the case of transfers between warehouses in multiple countries, inventory "disappears" due to customs clearance delays or labeling errors. Unit conversion errors (such as confusion between imperial and metric specifications).

What are the consequences of inventory differences?

Direct losses

Loss of revenue due to lost goods costs and order cancellations.

Hidden costs

Loss of customer trust (complaints of out-of-stock situations, bad reviews due to wrong shipments).

Reduced warehousing efficiency (employees spend a lot of time looking for "missing" inventory).

Financial reconciliation is difficult, affecting cash flow forecasts.

How to identify and prevent inventory discrepancies?

Automation technology empowers and reduces human errors

By replacing manual entry with barcode/RFID automated scanning, ensure accurate data throughout the entire process of warehousing, picking, and outbound delivery. Using real-time synchronization between WMS and ERP, Chinadivision's intelligent warehousing system supports direct API connection with platforms such as Shopify and Cin7, and inventory changes are updated in seconds. Ultimately, human errors can be reduced by 90%, and the oversold rate can be reduced to less than 0.5%.

Accurately identify inventory discrepancies

Develop a detailed inventory plan and conduct a comprehensive inventory of the warehouse regularly. By comparing physical inventory with system records, inventory discrepancies can be discovered and corrected in a timely manner. Use the real-time monitoring function of the warehouse management system (WMS) to track and record inventory changes in real time. Once abnormal changes are found, investigate and deal with them immediately. Conduct in-depth analysis of inventory data to find out the high-incidence links and causes of inventory discrepancies. Through data analysis, we can provide a basis for developing targeted preventive measures.

Develop a standardized operating procedure (SOP)

Through the two-person review system for receiving goods, two people will independently count and sign for confirmation when the supplier arrives.

Dynamic inventory mechanism:

Cycle inventory: high-value SKUs are checked frequently (once a week).

Full warehouse inventory: comprehensive inspection before and after the peak season, combined with AI prediction to develop the best schedule.

Effect: Inventory discrepancy rate is reduced from 5% to 0.8%.

Strengthen supply chain collaboration and transparency

Require suppliers to share shipping details in advance and automatically compare data after arrival. Standardize return reverse logistics, set up an independent return processing area, complete quality inspection and update inventory status within 48 hours. It can increase the supplier's arrival accuracy to 98% and the return processing efficiency by 70%.

Data monitoring and root cause analysis

Set up a difference warning dashboard to monitor the difference rate of each link in real time and automatically mark abnormal values ​​(such as a certain SKU is lost continuously). Train the model through historical data to locate high-frequency error links (such as a certain employee's high picking error rate). Reduce the time for checking differences from 3 days to 2 hours.

FAQ (Q&A)

How to avoid inventory confusion in cross-border multi-warehouse operations?

Use a distributed inventory management system, for example: dynamically allocate inventory according to sales areas (such as US orders are shipped from the US West warehouse first). Set a safety inventory threshold to automatically trigger a transfer warning.

How to remedy the inventory differences that have occurred?

Chinadivision provides a quick response service for differences: complete the difference verification and issue a report within 48 hours. Support automatic offset of system data or initiate product tracking. For high-value differences, start the insurance claim process.

Chinadivision's inventory difference solution

As a professional international logistics warehousing and fulfillment service provider, Chinadivision is well aware of the impact of inventory differences on B2B companies and e-commerce sellers. Therefore, we provide a comprehensive set of inventory difference solutions:

Intelligent warehouse management system

Adopt advanced warehouse management system (WMS) to achieve real-time update and accurate management of inventory data. Through system automation processing, reduce human operation errors and improve inventory accuracy.

Customized inventory counting service

According to customer needs, we provide regular or irregular inventory counting services. Through a professional inventory team and advanced inventory tools, we ensure the accuracy and reliability of inventory results.

Supply Chain Collaborative Optimization

Chinadivision has established long-term cooperative relationships with many high-quality suppliers and transporters, and ensures the smoothness and efficiency of the supply chain through information sharing and collaborative operations. At the same time, we provide supply chain risk assessment and early warning services to help customers respond to potential risks in a timely manner.

Professional Training and Support

Provide customers with inventory management training and consulting services to help customers improve their inventory management level. At the same time, we set up a 24-hour customer service hotline to answer customer questions and provide technical support at any time.

As a B2B enterprise and e-commerce seller, you need to have a deep understanding of the causes and identification methods of inventory differences, and take effective preventive measures to reduce the risk of inventory differences. As a professional international logistics warehousing and fulfillment service provider, Chinadivision will wholeheartedly provide you with a full range of inventory difference solutions to help you easily cope with inventory management challenges.