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Abstract
The advancement of technology has greatly impacted the efficiency and accuracy of measuring and managing inventory. The benefits are considerable: less time counting inventory, more accurate inventory counts, better on-shelf availability, and ultimately, higher customer satisfaction. In the past, inventory accuracy has been calculated in many different ways. This paper reviews the most prominent inventory accuracy methods and proposes the most appropriate method for measuring inventory accuracy across industry lines. Perpetual Inventory (PI) is what is believed to be in a store or facility at any given time, and PI Accuracy is how closely the actual count of units in the store is to what is thought to be there. The underlying notion of PI Accuracy seems universal, but it is debated on how this exact metric should be calculated and interpreted. This paper also explores these differences in detail, including their calculations and associated implications.
Summary
Perpetual Inventory (PI) is the store inventory updated dynamically at any given point of time, and the accuracy and validation of this metric is studied in this whitepaper. The differences in detail, including the calculations and associated implications are studied as well.
Inventory accuracy is essential for cost saving and customer satisfaction, and the associated technical terms including Actual, On-Hand (OH), Stock Keeping Units (SKU), Frozen Out-Of-Stock, etc. are clarified. The main characteristics of an effective accuracy metric are its interpretation, symmetry, and proportionality. The various accuracy metrics include determination of Total Magnitude, Exact Match, Sum of Absolute Variance (SAV), and Symmetric Mean Absolute Percentage Error (SMAPE).
The most common way of calculating inventory accuracy is Exact Match, however it does not convey overall inventory health by not accounting for the differences between a nearly out-of-stock SKU vs a SKU missing one unit. However, SMAPE accounts for weighted error measurements and is proposed to be utilized as the new universal standard for inventory accuracy.
