What an Inventory Audit Should Actually Review
Most inventory audits fail for a simple reason: they focus on counts, not causes. Teams will reconcile the numbers, close the audit and move on without learning why inventory keeps drifting out of alignment in the first place. An inventory audit should do more than confirm quantities. It should expose process gaps that create excess stock, shortages, write-offs and planning errors.
Inventory Records vs. Physical Reality
Every inventory audit starts with reconciliation, but this step is often treated as the finish line. Physical counts should be compared against system records across locations, bins and SKUs. This includes confirming that all storage locations, overflow areas and off-system stock are accounted for before reconciliation begins.
Are discrepancies concentrated in certain warehouses? Certain product families? Certain shifts or transaction types? Those patterns usually point to upstream process failures, not counting errors.
A quick note from experience: if the same SKUs show up in variance reports every cycle, the issue is almost never the count itself.
Inventory Audit Review Checklist
Use this guide as a working table of contents during an inventory audit. Each section below expands on why these areas create recurring inventory issues when they are ignored.
- Receiving and putaway accuracy
- Picking, shipping and transaction discipline
- Cycle counting programs
- Inventory valuation and aging
- Master data and item setup
- Process ownership and exception handling
- Inventory audit software and system support
1. Receiving and Putaway Accuracy
Receiving is one of the highest risk points in inventory flow. A supply chain audit should review how inbound quantities are verified, how discrepancies are recorded and how quickly inventory is made available in the system. At this stage, you should look closely at:
- How purchase orders are matched to receipts
- How partial shipments are handled
- How damaged or short shipments are documented
- How putaway timing affects available stock
2. Picking, Shipping and Transaction Discipline
Outbound processes are another common source of drift. Audits should review picking accuracy, shipment confirmations and how inventory is relieved in the system.
This is where inventory audit procedures tend to get vague, even though this is where most day-to-day errors occur. Are substitutions tracked correctly? Are shipments posted in real time or batched later?
Delayed or manual transaction posting can create inventory records that are technically correct but operationally useless. During physical counts, receiving and shipping activity should be paused or tightly controlled so timing errors do not distort results.
3. Cycle Counting Programs
If a company relies on annual counts alone, the inventory audit should flag that as a structural risk. An effective audit will check:
- How often cycle counts occur
- Which SKUs are prioritized
- How variances are investigated
- How corrections are approved
Cycle counts are not only a control mechanism, but they are a feedback loop. When they are treated as routine tasks instead of diagnostic tools, their value drops quickly.
4. Inventory Valuation and Aging
Inventory audits often gloss over valuation, even though excess and obsolete inventory quietly drain working capital. The audit should review how aging is tracked, how slow moving stock is identified and how write-downs are triggered. This includes reviewing:
- Obsolescence rules
- Demand assumptions tied to inventory aging
- How long inventory sits before action is taken
An inventory audit that ignores aging misses one of the most actionable areas for improvement.
5. Master Data and Item Setup
Bad data produces bad inventory, even when processes are followed perfectly. The audit should review item master accuracy, units of measure, lot and serial controls and reorder parameters.
Small setup errors compound quickly. Incorrect pack sizes, rounding rules or lead time assumptions can create planning errors that look like execution problems on the warehouse floor. Audit reviews should validate lead time assumptions using actual shipment and receipt history.
6. Process Ownership and Exception Handling
Every inventory audit should ask one uncomfortable question: who owns inventory accuracy when something breaks? Reviewing escalation paths, approval rules and exception handling reveals how issues are actually resolved, not how policies say they should be resolved.
If discrepancies are fixed manually without root cause review, the same issues will likely return next cycle.
7. The Role of Inventory Audit Software
Spreadsheets can still show up in many audits, but inventory audit software changes the scope of what teams can realistically review. Automated variance tracking, audit trails and supply chain transparency allow these audits to shift from manual reconciliation to process analysis.
The audit should review how systems can support:
- Real time supply chain visibility
- Transaction traceability
- Exception reporting
- Integration with purchasing and planning
Technology does not fix broken processes…but it does make them easier to see!
Turning the Audit into a Process Review
A well run inventory audit is less focused on proving numbers and more focused on revealing friction points across the supply chain. When audits focus only on counts, they just become repetitive exercises. However when they review how inventory moves, changes and ages, they become tools for operational improvement.
For companies investing time and resources into inventory management in supply chain, the payoff comes from expanding the scope beyond the warehouse floor and into the systems and decisions that shape inventory every day. Tracking audit findings over time helps expose repeat issues that short term fixes tend to hide.
How DXP Helps Improve Inventory Accuracy
DXP works with manufacturers and distributors to identify where inventory breaks down and how to fix it at the process and system layer. Our integrated supply chain services and storeroom solutions focus on improving inventory visibility, transaction accuracy and supply chain coordination so inventory audits become fewer, faster and more useful. If your inventory audits keep finding the same problems, it may be time to step back and address the systems and workflows creating them in the first place.
If you want to learn more about our suite of supply chain services, we invite you to connect with DXP Enterprises today. Call (936) 261-7736 for more information about our SmartSolutions and other supply chain services.
