Sorting count variances by cause: entry, location, real shortage

After a count, the first question from head office is almost always the same: the book says 18,400 and you found 17,950, so where did the 450 go? A total like that invites a bad answer, either "we are checking" or "it must be theft". The useful answer is a table in which every difference carries a cause code. This article describes five groups of causes and a simple routine for sorting variances into them.

The five groups

1. Entry and document errors. A wrong code was typed at receiving, a quantity was entered as 100 instead of 10, a unit was confused, or a document was posted twice. The goods are where they should be, but the book is wrong.
2. Timing differences. The count and the book refer to different moments. Goods shipped but not yet posted, received but not yet booked, or sitting in the loading area at the cut-off belong here.
3. Location and identification errors. The goods exist but were counted under another code or in another place, such as a similar part in the neighbouring bin. These often appear as pairs: one item short and a similar item over by the same amount.
4. Counting errors. The counter miscounted, skipped a bin or counted a box twice. A recount by a different person usually removes them.
5. Unexplained shortage or surplus. What remains after the first four checks. Causes may be unreported scrap, breakage, free samples taken without a record, or loss. This group needs follow-up, and it should be the smallest.

A five-step routine

1. Look for pairs. Sort the variance list by item family and by location. A shortage of 12 on one item beside a surplus of 12 on a similar item is nearly always a mix-up, and it should be resolved as one case.
2. Check the documents around the cut-off. For every line, look at receipts, issues and transfers in the days before and after the cut-off. Many differences disappear at this step.
3. Recount the large and suspicious lines. Use a different counter who does not see the first result.
4. Assign a cause code. Each line gets one code from the five groups, plus a short note. Do not leave it for an email.
5. Add values. Convert quantities into money using the cost basis that head office uses, so that the summary shows where the value is, not only the number of lines.

An illustration

For illustration, suppose a count produced 120 lines with differences. After the routine, the summary might look like this:

• 45 lines: documents posted after the cut-off or in the wrong period. No action beyond a note.
• 25 lines: entry errors, mostly wrong quantity or unit. Corrections proposed to the book.
• 30 lines: 15 pairs of mix-ups between similar items. Locations corrected, relabelling needed.
• 8 lines: counting errors, resolved by recount.
• 12 lines: unexplained. Listed with value, location and the next step.

In this example only a tenth of the lines remain open, and head office sees at once that the main work lies in documents and codes, not in missing goods.

Report the gross shortage, the gross surplus and the net figure separately. A net difference close to zero can hide large errors that cancel each other out, and the mix-up pairs described above are exactly that.

Reading the pattern

The distribution says more than the total. Many timing differences point to a weak cut-off. Many entry errors in one product family point to a code or unit problem in the master data. Many pairs point to labelling and layout. A cluster of unexplained shortages in one location or on one shift points to access and handling.

A cause code does not close a line. Each open line still needs an owner and a date, and the list should be reviewed again after a week to see what has been resolved.

Summary

Sorting variances by cause turns a single frightening number into a list of tasks with owners. Smart Inventory reconciles scan results with your 1C, Excel or ERP records line by line and sorts the differences by probable cause, so that the people at head office and in the local entity discuss the same short list of open items.