Comprehensive Business Analysis to Correct Significant and Persistent Annual Inventory Shrink Results
Client
A unique, well established, building material chain catering to consumers and professional builders in a semi-isolated market through 11 profit centers and four locations. Furniture, appliances and apparel supplement its primary building materials focus generating sales in the $40.0 million range.
Situation
The company is committed to ending annual physical inventory shrink results experienced over the last several years and needs independent help identifying and correcting business system deficiencies.
Solution
At the owner’s request, R. A. Young & Associates conducted a comprehensive audit and analysis focusing on:
- Replenishment, point-of-sale and financial procedures and systems
- Business function transactions impact on General Ledger
- New point-of-sale and accounting software conversion’s effect on existing systems and procedures
- Validity of existing inventory control oversight
- Physical inventory preparation and counting disciplines
Results
Uncovered improper point-of-sale activity generating 7.0% of previous physical inventory shrink, confirmed existing system effectiveness in capturing significant inventory management errors entered through new and old software systems and recommended the following:
- Tighten control of customer egress from stores to discourage theft.
- Improve receiving procedures and controls to minimize and mitigate inaccurate counts, shortages and concealed damage.
- Tighten point-of-sale discipline to improve SKU number integrity and inventory accuracy.
- Additional training for inventory management personnel to prevent incorrect posting to General Ledger inventory through Unit-of-Measure and Quantity-On-Hand adjustment.
- Continue monitoring software updates for impact on company-specific software customization and the General Ledger.
- Improve physical inventory preparation and counting discipline.
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