Cheat Sheet: Basic Inventory Controls

Internal Inventory Controls:

  • Fence and lock the warehouse. The single most important inventory control is simply locking down the warehouse. This means  a physical fence around the inventory, lock the gate and only allow authorized personnel into the warehouse area.
  • Organize the inventory. It may not seem like a control to simply organize the inventory within the warehouse, but if you can’t find it, you can’t control it. A fundamental basis for inventory internal control is numbering all physical locations, identifying each inventory item and tracking those items by assigned locations.
  • Count all received inventory. Don’t take the vendor’s word of the delivered quantity stated as being correct; Count the inventory before recording it as received. This keeps an error from being introduced into the inventory while reminding your vendor quality matters.
  • Inspect incoming inventory. Verify all incoming inventory is correct and not damaged. All items failing inspection should be immediately returned and the accounts payable staff notified of returned items not being eligible for invoicing.
  • Tag all inventory. Every item of inventory should be identified with a tag, item number, description, unit of measure and quantity. Without those steps the inventory items can be miss-identified and ordered incorrectly.
  • Standardize record keeping for inventory picking. When an item is picked from a shelf in the warehouse, for use either in a production area or direct sale to customers, have a standard procedure for recording those transactions as soon as they leave the warehouse (which is easier if there is a warehouse fence, and inventory can only pass through a single controlled gate).
  • Sign for all inventory removed from the warehouse. If inventory items are being removed from the warehouse for reasons outside of the normal picking process, have the person removing the inventory sign for the removal, so that there is a record of who is responsible.
  • Identify excessive requisitions and item returns. Review those items for clarity and understanding of why the activity has been skewed. Is the product quality insufficient? Has the production schedule changed?
  • Conduct a periodic obsolete inventory review. The warehouse can eventually become stocked with obsolete inventory which is no longer used. Those items cannot be used which requires high storage costs and interferes with valuations of your storage areas. Partner with other departments to periodically review the inventory records to determine which items should be sold off or eliminated.
  • Conduct cycle counts. Have the warehouse staff conduct frequent counts of areas within the inventory and investigate any errors they find. This gradually improves the inventory record accuracy.
  • Investigate negative-balance inventory records. If the inventory records show a negative inventory on hand there is obviously a transactional flaw that creating the negative balance. This example should be used as a flag to initiate a product audit.
  • Record waste. Do not simply discard waste or expired products when identified. If you do, the inventory tracking process still identifies those items as being in stock, resulting in an incorrect inventory. Instead, create a document to track wasted items on a regular basis.

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