You’ve conducted your yearly inventory, recorded your counts and reconciled your physical inventory to your books only to discover a number of discrepancies - discrepancies that can have a severe impact on your financial statement, COGS and Profits.

Being aware of the types of errors that can occur can help you identify the source of the discrepancy in many cases. This will allow you to make the necessary changes to bring the books current and ensure accuracy.

Incorrect Unit Count

An incorrect unit count error occurs when the physical inventory was counted incorrectly. While it may seem like an easy error to avoid, having parts in multiple locations, poor bin management, missing or incorrect labels and multiple counts in one package can increase the frequency of this error.

Incorrect Unit Measure

An incorrect unit measure error occurs when the unit of measure in the inventory management system differs from the unit used during the physical count. Hose, wire and similar parts are a major culprit for this type of error – you counted in inches but the inventory system uses feet. Bulk fluids can also cause incorrect unit measure errors.

Incorrect Part Number

An incorrect part number error occurs when you count a part, assuming it has a different part number than it really does. The resulting error will affect two parts – the part you thought it was will have a higher count and the part it is will have a lower count.

Similar to an incorrect unit count error, this error can occur due to poor bin management and missing or incorrect labels. 

Cycle Counting Adjustment Error

This error can occur when a cycle counter makes an adjustment in the accounting system that was already made previously but was not posted to the system. As a result, the error will be corrected twice, creating another discrepancy.

Pre Paid or Pre Billed Parts

While counting your inventory, make sure to exclude the parts that were pre-billed and on the special order shelf. Counting these parts during a physical inventory will result in an overage in the amount of those parts.  Prior to counting your inventory, make sure to label those parts as “do not inventory, or DNI”.

Consignment Inventory

This error occurs when counters accidentally count consignment inventory. As with the previous error, this one occurs less frequently within the parts department but you should be aware of it, if you do stock consignment inventory. 

Improper Cut-off

An improper cut-off error occurs when new inventory is counted as part of the physical count but the invoice was not yet entered into the system. Upon reconciling the physical count with the quantity in the system, it will appear you are short. Once the adjustment is made and the invoice is entered, you will be over by the same amount you made the adjustment for.

WIP Parts

A WIP error occurs when parts are currently being installed on a vehicle but have not been counted or they have not been associated with a job in the accounting system. This usually indicates a process error within the parts department but can cause inventory discrepancies.

Understanding the types of errors that commonly occur within your parts department can help you reconcile your inventory more accurately while also identifying areas of improvement within your department.

If you have any questions or would like a quote, contact us today.

Our inventory professionals look forward to assisting you.