How to Carry Out an Inventory Sampling


You can carry out the inventory sampling procedure in either Inventory Management or Warehouse Management. The process flow is also independent of the inventory sampling procedure.

Process Flow

Preparation Phase

1. Creating an inventory sampling

You have to set up the inventory sampling in the system before you can start it. In this process, you have to define several basic parameters, such as:

  • Which currency is to be used for the inventory sampling

  • The area in which the inventory sampling is to be carried out (Inventory Management or Warehouse Management)

  • The deviations up to which an inventory sampling is still considered successful

When you create an inventory sampling, it is assigned a number that uniquely identifies it. Any further steps are carried out as changes to this inventory sampling created.

2. Allocating the stock management levels

You must specify which stock management units are to be included in the inventory sampling. You do so by allocating certain quantities of stock management units, the so-called stock management levels, to the inventory sampling, rather than assigning individual stock management units to the inventory sampling.

3. Forming the stock population

The stock population is the total of all stock management units of an inventory sampling. When forming the stock population, the following actions are carried out automatically:

  • Breakdown of the stock population into complete-count area and sampling area

You can preset that counting of particular stock management units is mandatory; for example, if the material exceeds a certain price or if no book inventory balance exists for the stock management unit. The total of these elements is called complete-count area. All stock management units of the complete-count area must be counted. The stock management units that do not necessarily have to be counted form the sampling area.

  • Classification

The elements of the sampling area are divided into individual classes. Elements of approximately the same value belong to the same class. The generation of classes is necessary for stratification.

4. Generating a stratification

To reduce the number of stock management units to be counted to a minimum, the sampling area is divided into individual strata. The stratification is generated using classification. Consequently, the value dispersion in a stratum is considerably smaller than in the entire sampling area. With a small value dispersion, only relatively few elements must be selected to obtain a representative result. This has the advantage that considerably fewer elements must be counted than would be necessary if the random selection was performed for the entire sampling area. Therefore, the random selection is carried out separately for each stratum.

The process of stratification completes the preparatory phase.

The following graphic shows an overview of the preparatory phase of inventory sampling.

Active Phase

The following steps are required in the active phase:

1. Generating the random selection

In the process of random selection, the system determines the stock management units to be counted for each stratum.

2. Creating physical inventory documents

Physical inventory documents must be created for the stock management units to be counted. These documents are required both for all stock management units drawn during random selection and for all stock management units that were allocated to the complete-count area when the stock population was formed. The physical inventory document is the basis of the physical inventory.

3. Update

During the update process, the system performs the following two actions first:

  • It reads any count results.

  • It reads any changed book inventory balances and book values.

The system also checks whether the elements selected are representative for the sampling area. If not, the system suggests subsequent random selection. This is carried out among the elements in the sampling area if the inventory sampling is not yet sufficiently representative and among the elements in the complete-count area if, for example, a material exceeded the upper value limit (compare the parameters to differentiate between the sampling area and the complete-count area - usually only occurs with continuous inventory sampling).

The relative inventory sampling error determines when an inventory sampling is representative. If the error is below the maximum value defined in the parameters (usually 1 %), the inventory sampling is said to be representative. If the error exceeds the maximum value, the system suggests subsequent random selection.

The inventory sampling error is calculated in terms of two approaches:

  • a precise approach for the sampling area

  • an approximation approach for the total area (sampling area plus complete-count area)

In the planning phase and in carrying out the update, the system always uses the precise approach - i.e. the inventory sampling can only be extrapolated if the relative inventory sampling error in relation to the sampling area is1%. When this is the case, the inventory sampling is said to be fully representative. As long as errors continue to exceed this limit, the system continues to propose further subsequent random selections in the sampling area.

In consultation with your accountant, you can use the approximation approach as a basis for the final extrapolation. But you can only do so if the relative statistical error based on the sampling area and the complete-count area is1%. The advantage is that only a smaller sample has to be counted (less counting effort being required), as the relative inventory sampling error is distributed between the sampling area and the complete-count area (which produces no inventory sampling error). The errors are displayed in the list of extrapolation results.

Subsequent random selection elements in the complete-count area must usually always be subject to complete physical inventory, as they are part of the complete-count area.

For inventory sampling elements that have not yet been subject to physical inventory when the update is carried out, the current book value is used as an approximation for the result of the physical inventory. This enables you to check at any time whether the current sample is large enough to obtain a representative estimate of the sampling area.

Only inventory sampling elements that have been subject to complete physical inventory are used to calculate the relative inventory sampling error.

4. Extrapolation

During the extrapolation process, the system estimates the physical inventory value of the sampling area on the basis of the latest counting results. An average physical inventory value per item is calculated in every stratum and multiplied by the number of items in each stratum. The total of the stratum values determined in this way gives the estimate for the sampling area.

An inventory sampling is said to have been successful , if the total physical inventory value (estimate for the sampling area plus the actual value for the complete-count area) deviates from the book inventory value by no more than 2 % (in the standard system). An inventory sampling is said to have been conditionally successful , if the total area (sampling area plus complete-count area) was used as the basis for evaluating the relative statistical error (see above).

The following graphic shows an overview of the individual steps within the active phase.