Inventory discrepancies are an unavoidable reality of doing business. Maybe a shipment went missing, a flood damaged products, or a counting error inflated your records. Suddenly, what your system says you have in stock doesn’t match what’s actually on your shelves.
That’s when you need an inventory adjustment — a crucial step in maintaining accurate inventory data that reflects your real, physical stock levels.
In this article, we’ll explain what inventory adjustments are, when they’re necessary, the benefits they bring, and how to handle them efficiently.
What Is an Inventory Adjustment?
An inventory adjustment is the process of updating recorded stock levels in your system to align with the actual amount of inventory on hand.
These changes may include:
- Decreasing quantities when goods are damaged, lost, or stolen.
- Increasing quantities when additional stock is found or counting errors are corrected.
- Revaluing inventory to reflect updated costs or changes in product condition.
Regular inventory adjustments ensure your data is precise, which in turn supports smarter decisions about purchasing, production, fulfillment, and accounting.
When Should You Adjust Inventory?
You should make inventory adjustments any time there’s a mismatch between recorded and actual stock. Common causes include:
1. Theft or Shrinkage
Inventory shrinkage happens when goods disappear through theft, shoplifting, or internal mismanagement. Adjustments help account for the loss and maintain accuracy in your reports.
2. Damage or Breakage
Products that are damaged in transit or the warehouse can’t be sold. Writing them off via an inventory adjustment ensures your stock count only includes sellable goods.
3. Expiration or Waste
Perishable or time-sensitive items often expire before they’re sold. Adjusting your inventory removes unsellable stock and helps identify trends in over-ordering or storage inefficiency.
4. Misplacement or Loss
Disorganized storage can cause temporary or permanent losses. If misplaced items resurface later, an increase adjustment may be required to correct your records.
5. Returns and Internal Use
If returned goods or items used internally aren’t properly logged, your recorded inventory may fall out of sync with physical counts.
6. Counting or Clerical Errors
Manual data entry mistakes are common. Regular auditing and adjustment correct these errors to prevent long-term accounting distortions.
Types of Inventory Adjustments
There are three primary types of inventory adjustments your business may perform:
1. Decreasing Quantity
Used when goods are missing, damaged, expired, or consumed internally. This reflects a reduction in actual inventory available for sale.
2. Increasing Quantity
Applied when additional stock is discovered or previously unrecorded returns are processed, bringing the recorded count up to match physical inventory.
3. Revaluation
When the value of items changes — due to fluctuations in production costs, supplier pricing, or market conditions — you’ll need to revalue inventory to maintain accurate cost data.
Why Inventory Adjustments Are Important
Performing regular and accurate inventory adjustments offers significant operational and financial benefits:
1. Accurate Financial Reporting
For many companies, inventory represents one of their largest assets. Adjustments ensure your balance sheet accurately reflects your true inventory value, supporting trustworthy financial statements.
2. Better Decision-Making
With accurate data, you can confidently forecast demand, reorder stock, and allocate resources — preventing both overstocking and costly stockouts.
3. Improved Operational Efficiency
Frequent discrepancies can highlight inefficiencies in warehouse layout, staff processes, or technology. Adjustments help identify these weak points so you can improve workflow.
4. Enhanced Customer Satisfaction
When your inventory data is accurate, customers experience fewer backorders and stockouts. Accurate fulfillment equals happier, repeat buyers.
5. Stronger Cash Flow
Reducing errors and dead stock means your capital isn’t tied up in unsellable inventory. Regular adjustments help keep cash flowing and storage costs down.
How to Perform an Inventory Adjustment
While the steps are straightforward, precision is key. Here’s how to handle the process effectively:
1. Conduct a Physical Count
Perform a full or cycle count to determine actual quantities of stock. Compare those results to your recorded numbers.
2. Identify Discrepancies
Investigate any mismatches to uncover the cause — whether theft, breakage, or human error — and categorize them properly.
3. Record Adjustments
Update your inventory system to reflect the accurate counts. This may include adjusting both quantity and value for affected SKUs.
4. Document Everything
Maintain a record of each adjustment, including the reason, date, responsible personnel, and any related financial implications.
5. Audit Regularly
Establish a schedule for cycle counts and audits to catch discrepancies early and minimize large, costly year-end adjustments.
Expert Tips for Efficient Inventory Adjustments
Adopt Real-Time Inventory Management Software
Automation minimizes manual errors. With barcoding or RFID technology, your system can automatically update inventory as items are received, picked, packed, or shipped.
Real-time visibility ensures you always know your true stock position — reducing the frequency and scale of adjustments.
Leverage Data and Analytics
Inventory analytics can help pinpoint recurring problems. If certain SKUs frequently show discrepancies, it may signal a deeper issue in your receiving or fulfillment process.
Standardize Processes Across Locations
If you operate multiple warehouses or fulfillment centers, ensure consistent data entry and adjustment procedures. Uniform standards reduce confusion and data errors.
Train and Empower Your Team
Employees handling inventory should understand the importance of accuracy and the correct procedures for logging discrepancies and adjustments.
The Bigger Picture: Inventory Adjustments and Supply Chain Health
Regular inventory adjustments don’t just clean up your records — they strengthen your entire supply chain. They provide early warning signs of theft, waste, or inefficiency, and they help your leadership team make better decisions about purchasing, production, and distribution.
Consistent, accurate data means your supply chain runs smoother, your cash flow improves, and your customers receive what they ordered on time.
Why Partnering with the Right Fulfillment Provider Matters
Managing inventory adjustments manually can be time-consuming and prone to human error — especially as your ecommerce or retail business scales. That’s where partnering with a trusted fulfillment provider like Selery Fulfillment makes all the difference.
Selery’s advanced systems offer real-time tracking, automated reporting, and analytics-driven insights to help detect discrepancies early and maintain accurate records. With the right partner, you can focus on growth — while your inventory stays balanced and reliable.