By Herb Billings
June 3, 2020
Does inventory record accuracy differ by Market Segment? You bet it does!
Many factors are responsible for differences in inventory record accuracy between market segments. Higher value items are more attractive theft targets, but also justify higher investment in anti-theft controls. Items with high sales velocity experience increased transactions (receipts, sales, returns, transfers, and adjustments), each of which is an opportunity for error. Counting accuracy is another big factor because inaccurate counts guarantee inaccurate inventory records. And we often see significant differences between retailers within the same market segment due to policy and process differences.
As promised, here are our measurements for inventory record accuracy by market segment. Remember that we can only measure inventory record accuracy by counting and due to different count cadences we must determine a monthly degradation percent. See “Inventory Accuracy % Is Not Enough” for an in-depth discussion on how we calculate this metric.
*Annual Degradation % is an estimate assuming a constant monthly degradation % for 12 months and assuming 12 months between full physical counts.
For example, if a department store counts once a year, it should expect to see inventory record accuracy around 62.2% since accuracy degraded a total of 37.8% during the previous year. If the same department store counts every 6 months, it should expect to have inventory record accuracy around 81.1% since accuracy degraded 3.15% in each of the previous 6 months.
The following graph shows the impact of monthly degradation and how the differences between retail segments grow over time. See the Dataset Notes section below about how we arrived at these results.
Why would monthly degradation rates differ between retail market segments? One reason is varying levels of investment in inventory accuracy. Retailers who invest time in frequent cycle and category counts will have a lower degradation percentage because each count results in adjustments to inventory records, resulting in fewer inaccuracies for the same time period between full physical counts. Other reasons include investments in anti-theft measures and labor hours dedicated to shipment verification at distribution centers and stores.
It is interesting to note that the calculated monthly degradation percentage is less than the actual degradation percentage, thanks to inventory record adjustments made between full physical counts. Degradation of inventory record accuracy progresses regardless of count frequency – but frequent counts limit losses associated with inaccuracy. We will dive further into this aspect in future articles.
There is clearly a difference in inventory record accuracy between retail market segments, although this data does not tell us why these differences exist. What we do know is an investment in your inventory accuracy limits loss from inaccurate inventory records and increases your sales.
- The source dataset is a subset of Datascan client counts. It contains 10,131 counts performed in 2019 by stores meeting specific criteria.
- These stores must have performed at least one previous count in 2018 or 2019 with Datascan (at least two counts are required to measure degradation).
- Datascan clients who do not send inventory records (stock onhand files) as part of their counting process are excluded (inventory record accuracy requires inventory records).
- Variances are analyzed at the end of the count, but before these counts are fully reconciled in the retailers’ systems.
- The measurements reported are the average of each client’s average degradation percentage, to avoid clients with large numbers of stores from overwhelming the results.