It’s always a good idea to prepare for an audit. But, when it comes to inventory management, preparing is not enough. You need to be proactive about your inventory and ensure that you are following all of the auditor’s guidelines. This article will provide some tips on how to optimize your business’s inventory before an audit.
1. Conduct Regular Stock Taking of the Physical Stock
Conducting regular stock-taking is the best way to understand your business and how it fits into any guidelines. When you conduct a physical inventory of your stock, you gain an accurate idea of exactly what’s in store for auditors. You can also easily weed out anything that might be deemed unnecessary by the auditor. When you know what your business has, it makes any future audits much easier to manage.
2. Analyze Your Supplier’s Performance
When it comes to inventory management and the auditor, you need to understand how your suppliers work by knowing their processes and point of sale. When you see what goes on behind the scenes, you will prepare for potential audits.
Even when you dig deep about your potential suppliers, you still need to take some time to evaluate their performance. Be cautious about their delivery times, how carefully they handle the product, if they ever make inventory mistakes and how quick do they supply. You have the right to ask them for a better service and to follow the clauses of your contract closely.
3. Employ the 80/20 Rule
Most businesses will have a loss prevention department with specific guidelines for what is and isn’t allowed. You can use the 80/20 rule to ensure that you are following all of those rules. In other words, 20 percent of your products account for 80 percent of your sales volume. These items must be present in your physical inventory.
4. Track Down All The Products Info
Tracing all of your products information is another great tip for optimizing inventory. Ensure that you know where each item has come from and how it got to the store. Auditing becomes much easier when you have this info because you can point out any discrepancies with ease. You will be able to show what happened to the missing items.
The way you track down your inventory will depend greatly on the size of your business and, of course, the size of your inventory itself. If you’re starting a business, it’s still small and you can count your products easily by creating a spreadsheet where you can keep track of all your products.
If your business starts growing you’ll eventually see the need to keep a closer eye on your inventory, that’s when you’ll need to make use of more advanced monitoring techniques.
5. Check the Re-Ordering Process
Making sure that your business’s reordering process is up to par isn’t just about inventory management or point of sale monitoring. It also helps prevent any possible fraud or theft of items before they are put out for sale. Checking the reordering process ensures that you have what you need when it’s time to restock shelves and keep them filled with your products.
Ordering and re-ordering are the two main steps of any inventory management flow. We can define the following as the main steps a business usually has to follow in order to fulfill a successful re-ordering process in which no products are missing:
- You’ll need to create a detailed purchase order
- Send out multiple requests for quotations so select suppliers can submit their prices and offers to get a chance to be chosen
- You select the vendor who fulfills your needs and meets your price
- Negotiate the contract and policies so you can send them your Purchase Order (PO)
- Receive the services and check the invoice thoroughly looking for any mistake in the information
- Have your administrative department authorize the invoice and make your payment
- Immediately input the products into your inventory
6. Inventory Management Technology
Technology is a significant part of inventory management. Ensure that you have the right technology to help with your auditing process and ensure accuracy within your stock-taking.
There are plenty of great software programs, usually called POS systems (point of sale), which are flawless for tracking products and reordering items, as well as recording sales and restocks. These are just some of the many great ways that technology can help you with inventory management.
Do your research when investing in any inventory management software system. The inventory management technology should work for your business and meet all guidelines (especially loss prevention). They may also need approval from auditors.
This article has provided some great tips on how to optimize your inventory before an audit. Remember that your product is probably the most valuable asset of any business, so engaging in effective inventory management will improve your efficiency and even improve your ROI (Return on Investment) rates.