Inventory audits are about more than ticking boxes for accounting. In the building materials industry — where high-value, high-volume stock moves across multiple yards — a poor audit process exposes the entire operation to hidden risks that impact service levels, cash flow, and compliance.
If your inventory audits are inconsistent, disconnected from your ERP, or treated as a once-a-year scramble, you may be facing far more than simple stock variances.
Here are the key operational risks tied to poor inventory audits — and what you can do to prevent them.
Risk #1: Stockouts That Lead to Missed Deliveries
When your system says an item is in stock — but it isn’t — the fallout is immediate:
Last-minute scrambles to locate the right material
Delayed dispatches and delivery rescheduling
Damaged customer trust and project timelines
Why it happens:
Infrequent audits or out-of-date count data
Lack of cycle counting tied to real-world movement
No real-time updates between picking, staging, and ERP entries
How to fix it:
Implement automated cycle counts for high-turn SKUs
Tie all count activity to location-specific ERP workflows
Use mobile scanning to verify picks and staging steps
Risk #2: Overbuying and Overstock from Inaccurate Data
Without reliable audits, your purchasing team works in the dark. They may reorder stock that’s already sitting in the yard — just not properly tracked.
Result:
Excess capital tied up in slow-moving inventory
Yard congestion and inefficient storage
Higher write-off risk at year-end
Solution:
Audit slow-moving SKUs quarterly
Flag aging inventory in your ERP for review
Use audit results to drive purchasing thresholds and reorder logic
Bonus: Reduce carrying costs without risking service level drops.
Risk #3: Revenue Leakage from Shrinkage and Theft
Shrinkage isn’t just an accounting term — it’s real money walking out the door, often unnoticed for months.
Causes:
Unsecured storage zones
Manual adjustments without traceability
No variance review process tied to audit outcomes
How to reduce the risk:
Require approval for adjustments flagged during audits
Track who performed each count and adjustment, and when
Use lot tracking or serial logging for high-value materials
Outcome: A closed loop between audit discrepancies and operational accountability.
Risk #4: Increased Safety Hazards from Misplaced Materials
Poor audits often leave stock in the wrong place — which creates safety issues:
Overloaded racking or unauthorized zones
Staging areas cluttered with materials that should’ve been shelved
Forklifts operating in narrow aisles to retrieve oversized misplaced goods
Fix it with:
Location-based audits, not just quantity checks
ERP alerts for items stored outside assigned zones
Visual checks tied to ERP audits for high-risk zones (e.g., outdoor yards or cantilever racks)
Risk #5: Slower Month-End and Year-End Closures
Finance teams rely on audit data to close books and file reports. When inventory records are off, reconciliation becomes slow, expensive, and stressful.
Symptoms:
Excessive time spent on recounts
Unexplained adjustments after financial periods have closed
External audits leading to penalties or red flags
Best practice:
Use rolling cycle counts to reduce end-of-year surprises
Reconcile ERP stock balances monthly — not just annually
Maintain digital audit logs and count history for every SKU
Risk #6: Regulatory and Insurance Exposure
Inaccurate or undocumented audits can leave you exposed in the event of:
Insurance claims after damage or theft
Regulatory inspections tied to inventory traceability
Disputes around material quality, expiry, or recall
Mitigation tips:
Link audit logs and photos to your ERP for every discrepancy
Maintain time-stamped inventory movement history
Ensure all audit procedures are documented and enforced across sites
Final Thoughts
Poor inventory audits don’t just lead to wrong numbers — they ripple out across your operation, creating stock issues, safety risks, financial blind spots, and lost trust.
But with structured, ERP-connected audit processes and real-time tracking, you move from reactive to proactive. You turn audits into a performance tool — one that helps your business grow stronger with every count.
