Inventory errors are a major problem for many manufacturing businesses. From incorrect registrations and missing items to order handling mistakes – these errors can cost businesses significant sums every year. But it doesn't have to be this way. With digital inventory management, you can drastically reduce inventory errors and gain full control over your inventory.
In this article, we walk you through the most common types of inventory errors, how much they cost, and how digital inventory management can help you eliminate them.
Why Inventory Errors Are a Problem
Inventory errors can have serious consequences for your business. They can lead to:
- Lost sales: You promise delivery of items that aren't available
- Overstock: You hold too much of certain items, tying up capital
- Understock: You run out of critical items, halting production
- Customer satisfaction: Delayed deliveries and order mistakes frustrate customers
- Accounting errors: Mistakes in inventory valuation affect your accounts
Studies show that businesses with manual inventory management have an error rate of between 1-3%, while businesses with digital inventory management can reduce this to below 0.1%. For a business with an inventory value of 5 million NOK, this can mean a difference of 50,000 to 150,000 NOK in errors every year.
Common Types of Inventory Errors
Before we look at the solutions, let's look at the most common types of inventory errors:
1. Incorrect Registration from Manual Entry
When employees have to enter item numbers manually, typos frequently occur. A wrong digit or letter can cause the wrong item to be registered, or the item not to be found in the system.
Example: An employee types "ABC123" instead of "ABC124". The system registers the wrong item, and the inventory count becomes inaccurate.
2. Forgotten Registrations
In a manual system, it can be easy to forget to register items coming in or going out. This causes the inventory count to not match reality.
Example: A delivery arrives, but the responsible person forgets to update the inventory. The system shows incorrect stock levels for several weeks.
3. Counting Errors
Manual inventory counting is time-consuming and error-prone. Even with careful work, errors can occur when counting hundreds or thousands of items.
Example: During counting, an item is miscounted, and the inventory becomes 10 units too high. This affects ordering decisions.
4. Order Handling Errors
When items need to be linked to orders, errors can occur if the system is manual. The wrong item can be added to the wrong order, or items can be forgotten entirely.
Example: An employee adds item A to order 1, but should have added item B to order 2. This leads to confusion and delays.
5. Cost Registration Errors
Without automatic cost registration, costs can be recorded incorrectly or forgotten. This affects inventory valuation and accounting.
Example: An item costs 100 NOK, but is registered as 1,000 NOK. The inventory value becomes 10 times too high.
How Digital Inventory Management Reduces Errors
Digital inventory management solves these problems through automation, real-time overview, and error reduction. Here's how:
Barcode Scanning Eliminates Typos
With barcode scanning, you eliminate human errors during entry. Instead of typing item numbers manually, you simply scan the barcode with your phone.
Benefits:
- 99% error reduction: Barcode scanning has an accuracy of over 99%
- Faster registration: Scanning takes seconds instead of minutes
- No typos: The system reads the code directly, no possibility of error
- Automatic recognition: The item is recognized immediately in the system
Example: With manual entry, it can take 30 seconds to register an item, with a 2-3% probability of error. With barcode scanning, it takes 2 seconds, and the error rate is below 0.1%.
Real-Time Overview Prevents Forgotten Registrations
With digital inventory management, stock levels are updated immediately when an item is scanned. This means that:
- No forgotten registrations: The system requires items to be registered by scanning
- Immediate updates: Stock levels are always up to date
- Full traceability: You can see when each item was registered and by whom
- Automatic history: All movements are logged automatically
Example: When a delivery arrives, employees scan each item. The system updates stock levels immediately, and everyone can see the new inventory right away.
Automatic Counting with Barcode Scanning
Instead of manual counting, you can use barcode scanning for fast and accurate counting.
Benefits:
- Faster counting: Counting with scanning is 5-10 times faster than manual
- Higher accuracy: The error rate is below 0.1% instead of 1-3%
- Less work: Employees don't have to count manually
- Automatic registration: Results are registered automatically in the system
Example: A manual count of 1,000 items can take 4 hours and have a 2-3% error rate. With barcode scanning, it takes 30 minutes and has below 0.1% error rate.
Streamlined Order Handling
With digital inventory management, you can link items to orders directly by scanning. This eliminates order handling errors.
Benefits:
- Direct linking: Scan an item and select an order with one click
- No errors: The system prevents the wrong item from being added to the wrong order
- Full overview: You always see which items are linked to which orders
- Automatic updates: Order status is updated automatically
Example: When you need to add items to an order, you scan each item and select the order. The system registers everything automatically, and you immediately see which items are missing.
Automatic Cost Registration
With digital inventory management, you can register costs directly when creating or updating items. This ensures accurate cost registration.
Benefits:
- Accurate registration: Costs are registered directly when creating items
- Automatic calculation: The system calculates total inventory value automatically
- Full history: You can see cost history for each item
- Accounting-ready: Data is ready for export to accounting
Example: When you create a new item, you register the cost right away. The system calculates inventory value automatically, and you can export data to accounting at any time.
Practical Tips for Reducing Inventory Errors
Even with digital inventory management, there are some best practices you should follow:
1. Always Scan Upon Receipt
Make sure all items are scanned when they arrive. Don't wait until later – scan immediately to avoid forgotten registrations.
Tip: Create a routine where all deliveries are scanned before they are stored. This ensures nothing is forgotten.
2. Use Consistent Names and Codes
Give items clear, descriptive names and use consistent barcodes. This makes it easier to find and manage items.
Tip: Create a naming convention for items (e.g., "Category-ItemType-Number") and follow it consistently.
3. Update Stock Levels Regularly
Keep stock levels updated by scanning items when they are moved. This ensures the overview is always accurate.
Tip: Create a routine for regular counting and updating of stock levels.
4. Use Project IDs or Order Numbers
When linking items to orders, use clear project IDs or order numbers. This makes it easier to organize and find orders.
Tip: Create a numbering convention for orders (e.g., "2025-001", "2025-002") and use it consistently.
5. Export Data Regularly
Export inventory data to accounting regularly to keep accounts up to date and avoid errors.
Tip: Create a monthly routine for exporting inventory data to accounting.
ROI Calculation: How Much Can You Save?
Let's look at a concrete example of how much you can save with digital inventory management:
Scenario: A manufacturing business with:
- Inventory value: 5,000,000 NOK
- Error rate with manual management: 2%
- Error rate with digital management: 0.1%
Calculation:
- Error cost with manual management: 5,000,000 × 2% = 100,000 NOK/year
- Error cost with digital management: 5,000,000 × 0.1% = 5,000 NOK/year
- Savings: 95,000 NOK/year
In addition, you save time on:
- Faster registration (seconds vs. minutes)
- Faster counting (hours vs. days)
- Less time on error correction
- Simpler accounting work
Total ROI: With an annual cost of e.g. 20,000 NOK for digital inventory management, you get an ROI of 375% in the first year.
Conclusion
Inventory errors can cost businesses large sums every year, but with digital inventory management, you can reduce errors drastically. Barcode scanning, real-time overview, and automated processes eliminate most human errors and give you full control over your inventory.
If you want to learn more about how digital inventory management can help your business, you can read more about simple inventory management with Momentech or how to choose an inventory management system.
Are you ready to reduce inventory errors in your business? Get in touch with us and we'll help you find the best solution for your needs.