Where stock variances come from: a practical classification

"A variance turned up in the count" is not a conclusion; it is where the work starts. If a correction is made without knowing the cause, the same variance returns in the next count. And not every variance is a loss: more often it is document timing, a wrong item or a counting error. This article shows how to sort variances into six causes and in what order to examine them.

Six causes

1. Timing difference. The goods moved but the document was posted after the count cut-off (or the other way round). Once the document is posted, the variance closes by itself.
2. Wrong item. The shortage on one item is the surplus on a similar one: two colours, two sizes or two models were confused.
3. Unit error. The same item has moved in a mixture of metres and kg, or cartons and m².
4. Duplicate record. The same product is recorded as two separate items under different names or codes.
5. Counting error. A zone was skipped, a pallet counted twice or written on the wrong line.
6. Genuine loss or surplus. Damage, waste, a sample without a slip, an unrecorded issue.

The last cause is reached only after the first five have been ruled out. Arriving at "loss" too early leads both to false accusations and to the real cause being missed.

The order of investigation

Go from the cheap check to the expensive one:

1. Rule out the counting error first: recount the line that shows a variance.
2. Look at documents posted after the cut-off time, or still waiting.
3. Look at the units: is the unit in the record the same as the unit counted?
4. Compare with similar items: is there a surplus next to the missing item?
5. Look for duplicate records.
6. Note whatever remains as a genuine loss and collect the evidence for it.

Steps two to five can mostly be done in the office, with documents and a few phone calls; the floor is needed only for the recount and for step six. This order also spares the warehouse team from being blamed needlessly.

Example: how 30 variances break down

In an illustrative count, 30 lines show a variance. When the investigation is finished the table looks like this:

• timing difference: 9;
• wrong item: 7;
• unit error: 5;
• counting error: 4;
• duplicate record: 3;
• genuine shortage: 2.

9 + 7 + 5 + 4 + 3 + 2 = 30. Only two of the 30 lines are genuine shortages. What at first glance looks like "loss on 30 items" is in fact largely a matter of documents and record-keeping. Each cause also has a different owner: timing differences are settled in accounting, wrong items and duplicates in the item list, counting errors by the counting team, and genuine shortages by warehouse management. This breakdown is only an example; in real counts the proportions vary widely from one warehouse to another. Knowing how many lines each cause accounts for also shows where to focus in the next count.

How to prove the cause

Every cause code needs evidence beside it:

• for a timing difference: the document number and the date it was posted;
• for a wrong item: the code of the matching item and its surplus;
• for a unit error: the conversion factor;
• for a counting error: the result of the recount;
• for a genuine shortage: the recount, the date of the last movement and a photograph if there is one.

The evidence is the answer to the later question "what did you base this on?" A cause code without evidence is only a guess, and those lines of the table should be clearly marked.

Prevention by cause

The real benefit of classifying is that the same variance does not come back:

• timing difference: a written rule for the cut-off time and for how quickly documents are posted;
• wrong item: a distinguishing code and label for similar products;
• unit error: a main unit and a conversion factor on the item card;
• duplicate record: clean up the item list and limit who may open new items;
• counting error: a check count and a zone list;
• genuine loss: access, responsibility and rules for issues without a slip.

Measures are added not all at once but through a short review after every count.

In short

Classifying a variance means taking it to the right person for the right action. In its process StockSystem places the counted quantity next to the balance in the records and sorts differences into unposted slips, wrong items and genuine shortages; in the variance table every line carries a likely cause.