Inventory Operational Levels
A step-by-step method to achieving inventory accuracy through controlled inventory operations

By utilizing Mango Report^® your store is employing a rigorous method to measure and achieve True Inventory Accuracy -- meaning a store's inventory as represented on its computer point-of-sale system is sufficient to account for financial performance, has quantity-on-hand accuracy sufficient to generate good orders, and is capable of detecting shrinkage caused by theft, all in a labor efficient way. Mango's focus on True Inventory Accuracy goes well beyond quantity-on-hand accuracy, which has been the primary focus of traditional accuracy methods such as cycle counting or annual physical inventories.

                 

These key operational components are measured as your store utilizes Mango's Count Sheets and are reported on your Inventory Accuracy Scorecard (Review Email, Charts.pdf). Although it is possible to achieve each level independently, we suggest achieving each level sequentially (first Level 0, then Level 1, etc.).  Your Inventory Accuracy Scorecard will clearly show what level your store is working towards achieving.



Level 0 - Completion -  a measure of your store's Count Sheet utilization.
Mango's Count Sheets must be processed (SKU's physically counted, 300-400 per month) to report and achieve your operational goals. This is "level zero" because all other operational levels depend on thorough Count Sheet processing.

Level 1 - IRA - Inventory Record Accuracy or quantity-on-hand accuracy is a standard and important measure of how well your computer quantity-on-hands match physically when counted.  The measurement is obtained by processing your Count Sheets (Operational Level 0, above) where IRA is randomly sampled using the RC Count Type. If your IRA metric is showing "??" this means that your store's Count Sheet Completion metric has dropped below 95%.

Level 2 - Dollar Accuracy - a measure of how close your physical ending inventory matches your computer inventory value (perpetual inventory value).
Perhaps the most important and easily obtainable metric is Dollar Accuracy.  Here we are looking beyond quantity-on-hand accuracy (IRA) and auditing for inventory errors, phantom inventory, and accidental non-inventory items.  Many times SKUs have errant costs or negative values which can dramatically impact how a store's financial performance is measured. Sometimes it's only a handful of SKUs creating all the financial havoc.

Level 3 - Shrink - a measure of your store's inventory loss (at cost) divided by sales; loss due to theft and breakage.
Our favorite metric and maybe the best metric to consider as a staff incentive. Shrink wraps into one metric, many of your accuracy processes including counting accuracy, cashiering accuracy, loss prevention processes, back/top stock processes and shelf organization.  Operational Level 0, 1 and 2 are prerequisites to measuring a clean shrink metric and an understanding of how Mango treats Excluded and Adjusted shrinkage is crucial to getting this metric right. Stores passing this level will be able to tell if theft (internal or external) is unusually affecting business performance--successful implementation will significantly reduce shrinkage in most stores.

Level 4 - Efficiency - a measure of labor directed to inefficient accuracy processes such as widespread counting.
We all know labor is limited, especially when it comes to inventory accuracy.  How and where we choose to deploy our accuracy labor can have a large effect on sustained accuracy. Massive counting labor directed at widespread counting tends to mask root accuracy leaks and overwhelms the research process with  trivial variance noise. No store can achieve sustained accuracy through counting alone. Instead, a focus on variance research, shelf maintenance, cashier testing and risk-based counting (Count Sheets and Shooting Outs) allows your inventory coordinator to root out accuracy leaks while discovering and correcting impactful variances.
 
Wrapping it up
Although Operational Levels are measuring separate categories, they are highly related to each other.  It is difficult for a store to achieve reasonable Dollar Accuracy if its IRA is poor and it is difficult for a store to improve its IRA if it devotes most of its accuracy labor to counting SKUs rather than variance research and cashier testing.  A few stores are already at advanced levels when they first come on to Mango, but the typical store has a lot of work to do (or undo).  It can be a difficult change for some stores with limited inventory control experience, or who rely heavily on counting.  We encourage goal-setting, patience, monitoring, and persistence. Accuracy and shrink control is a journey, please let us know if you have questions or get lost along the way.

Have fun! 

Articles in this section