Conducting an Inventory Audit

Conducting an Inventory Audit

Periodically conducting an inventory audit is an important part of effectively managing an eCommerce business. During an inventory audit, financial records are double-checked against inventory records which is a good way to make sure records are accurate. This may uncover possible issues such as damaged or missing items.

An eCommerce business may perform an inventory audit at any time to check inventory on hand in order to get a better idea of where things stand. Businesses may choose to audit all or part of their inventory periodically. Regular inventory audits can help prevent inventory shrinkage and can identify issues such as SKUs that are consistently off.


How Often Does an Inventory Audit Need to Be Done?

An inventory audit should be done at least annually. An inventory auditor may engage in a variety of inventory audit procedures to confirm that the amount stated as inventory is accurate. An annual audit may be done each year for tax purposes or it may be done to get a clear idea of what products are on hand and when they need to be restocked. An inventory auditor may be someone on staff or a third party from an outside auditing company. 


What Methods are Used to Verify Inventory?

To describe methods used to verify inventory, it’s a good idea to start with your inventory audit objectives. Every inventory audit includes counts of inventory and data analysis and is a way to check inventory to ensure it matches the information within your automation system. Examples of methods that may be used to verify inventory include:

Full audit

This method involves counting all items in stock, which may be time-consuming. To obtain accurate results from this method, you’ll need to pause the actions of your business while the count takes place. Cutoff testing ensures that nothing goes in or out of the storage areas while the inventory audit is done. This means operations such as shipping and receiving are paused.

Cycle count

Using this method, you cycle through part of your inventory based on SKU. Selected products are audited each cycle rather than auditing the entire inventory at once. One way to divide inventory for partial auditing is by using ABC analysis. This means grouping items by value such as “A” products are high-value items, “B” products are mid-tier and category “C” consists of the lowest value products. 

ShipHero has a cycle count feature that makes it super easy to execute this inventory method. Check out this video to find out more.

Spot check inventory

Another approach is to periodically do a physical inventory of just a few items. Regular spot checks may make it unnecessary to do an audit of your entire inventory very often which may be the best option for large companies with a large number of items in stock.

A partial inventory count may be done periodically to make sure items counted match inventory records, and if they don’t match, a full audit may be done. An eCommerce business must consider not only stock that’s on shelves but also stock that’s in transit to and from the fulfillment center. 


Inventory Auditing Best Practices 

Accurately tracking the value of your inventory helps you to budget for future inventory decisions. Auditing inventory can be time-consuming but devices like barcode scanners can help track inventory electronically. Point-of-sale tracking using SKUs allows for real-time tracking of inventory balances keeping inventory counts up to date and providing important information on what stock needs to be replenished.

Warehouse audit best practices include auditing items in the warehouse and reviewing the effectiveness of warehouse processes. This includes determining whether warehouse operations are complying with safety standards and policies. Having two people count each item and checking that their numbers match is a good way to improve accuracy.


What is an Inventory Findings Report?

Once an inventory audit is completed, an inventory findings report is done to provide detailed information on the value of your inventory which offers clarity on inventory accounting. This report can identify operational errors, help identify any inefficiencies in current inventory procedures and provides information needed to make budgeting decisions such as deciding whether to discontinue certain items that may have a surplus or it can provide insights into where funds could be redirected. Routine inventory audits provide one of the best ways to optimize inventory control.

Does Your eCommerce Business Need to do an Inventory Audit?

If your eCommerce business is small, you may think inventory audits aren’t yet needed, but audits can be beneficial whether your business is large or small. Performing regular inventory checks helps you implement good inventory management practices that will continue to benefit your company as it grows.

When you’re running an eCommerce business, effective inventory management helps you to have a handle on the size and condition of your inventory. Regular audits enable you to make sure that you have what you think you have in stock, and that you have enough inventory without having too much. When you know exactly what’s in stock and where it is, your business will run more smoothly and efficiently for your staff so that they can better serve your clients. 

For More Information About ShipHero 

Whether you want to let go of running your own warehouse, or run your warehouse better, you can do both – and so much more – with ShipHero.

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About ShipHero

ShipHero is a US-based, leading solution provider in the fast growing eCommerce fulfillment space. ShipHero served over $5 billion of eCommerce orders in 2020 and is growing rapidly. ShipHero provides warehouse management software for brands that operate their own warehouses as well as outsourced fulfillment as a service from ShipHero owned and operated North American warehouses. Some notable customers include Universal Music Group, Glossier and Canadian Tire. ShipHero is a Shopify Plus partner and more than 10% of Shopify Plus stores globally use ShipHero.

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