Negative inventory sounds kind of far-fetched, right? It does happen, however, when inventory control and tracking software reports an item’s inventory quantity as less than zero. As you can imagine, this is a problem – so if you see negative inventory, something is wrong.
Following are some two causes of negative inventory:
Timing Problems
Sometimes you receive a shipment from a supplier that is immediately turned around and shipped to your customer. If the shipment was logged into your inventory system as “received,” but not as “shipped” when it went out, your inventory numbers will be negative until the delivery is marked as shipped.
When negative inventory numbers are caused by a timing issue, you should make certain that the items are logged as shipped, but do not make manual corrections to the numbers. The negative inventory will balance itself out when the received and shipped logs “catch up” to one another.
Incorrect Entries
Incorrect entries happen when either incoming supplier shipment quantities or outgoing customer shipment quantities are incorrectly reported. The negative inventory numbers will show up if the error is very large compared to normal inventory levels. This can also happen if you have more than one inventory location and accidentally report a shipment from location A instead of location B. If location B’s inventory levels were low, this incorrect logging will cause negative inventory numbers at location B. In this case, while the total inventory of A plus B is still correct, the situation can still cause problems until corrected.
If incorrect entries occur, catching negative inventory is especially important because the numbers won’t eventually balance themselves out. That’s why, here, a negative inventory is good because it serves as a red flag that a mistake has been made.
How you respond to the problem of negative inventory depends on what caused the error. As we mentioned, the timing problems will balance out after all information is logged correctly and therefore you should make no manual changes to the numbers. If incorrect entries were made, however, the inventory should be re-counted and re-logged to ensure accuracy.
In order to fix and hopefully prevent negative inventory, a good inventory software system is key. Some inventory systems have programs that will respond poorly to negative inventory numbers, especially if the system is using a spreadsheet system put together by someone who is not careful with his/her equations or with an old system that may not recognize that negative inventory can exist.
Want to know more about getting a better inventory system or learning how to deal with negative inventory? Contact Acumen Information Systems today and build your business acumen.
