Negative inventory: get your stock back into the positive
Negative Inventory: How to Get Your Stock Back into the Positive
Last updated: 27.04.2022
Many manufacturers might tell you that negative inventory is a problem that will occur enough times that you might as well embrace it. However, the unfortunate truth is that it’s a sign of bad management. That’s why we’ve looked into negative inventory, how to identify it and remove it from your processes.
Entrepreneurs have a lot on their plate when it comes to managing their business.
Negative inventory (sometimes ghost inventory) is when a manufacturer’s inventory count suggests that inventory is below zero.
The reason your inventory has dropped below zero, we’ll explore later in the article, is that there could be several reasons you see negative stock.
Regardless of the reason your inventory has negative stock, it’s a very common problem in the manufacturing industry, and some companies even use it as an actual business practice.
However, by embracing negative stock, you’re in danger of creating bigger problems for your business, mostly because you’ll be making unnecessary decisions, such as ordering more materials or starting production, due to faulty information.
Ultimately, negative inventory is a sign of poor management when processing sales and manufacturing orders, not as a part and parcel occurrence that manufacturers need to face.
And if you continue to allow the negative stock to generate in your inventory, you will always be risking:
Selling items to customers without stock in-store
Selling items to customers without stock online
Performing a stock transfer with insufficient stock
Ordering more materials even though some materials are already in production
You probably get the gist of the issues by now.
But, knowing the issues is one thing. The best way to avoid negative inventory is to be proactive and identify what makes negative stock occur.
The best way to avoid negative stock generating is to easily implement production management software to track and manage your inventory.
How does negative inventory occur?
Now you know all about negative inventory. The next step is to identify where the negative stock comes from.
Negative inventory can occur due to:
This is probably the most common occurrence when looking into what is negative inventory. An example of a timing issue could be that a customer places an order for a product that’s out of stock, but you go ahead and mark the order as shipped because you know that production for the product will be wrapping up soon.
This issue is probably the easiest to fix because you can make the necessary inventory adjustments once production is complete.
During manufacturing, you need to consider byproducts, scrap amounts, production statistics, and batch tracking. Misunderstanding your manufacturing orders or accidentally creating a duplicate can lead to manufacturing either not enough or too many products.
Inventory at multiple locations
This can occur when dispatching products to the wrong warehouse or recording a sale from the wrong store. This negative inventory issue is scary because if you save the stock transfer wrong, it could look like warehouse A is missing 200 items, while warehouse B has 200 more items than it needs.
Item-level negative stock
Backflushing, the process of generating and completing a manufacturing order (MO) after a batch production has finished so you can update your current inventory levels. Alternatively, an item-level negative stock might appear if there’s a product that you want to make to order (MTO) only when the demand is there.
So, now you know how negative inventory occurs, now you need to know how to correct these mistakes and regain control over your inventory.
How to fix negative inventory
It might seem like correcting negative inventory is a complex process, considering how easily negative stock can form.
However, we’re happy to provide you with some comfort by letting you know that correcting negative inventory is pretty straightforward. Especially when you know what you’re looking for.
All you need to do is go into your inventory management systems reports and locate which products or materials are displaying stock levels below zero.
From here, you can investigate your recent transactions to determine what led to the negative inventory appearing and what type of negative inventory it is.
However, the corrections you’ll make will all be dependent on the type of negative inventory you’ve recorded:
Time – When correcting, such as marking a product as shipped before production has finished, it’s important not to overstate your amount and remember that missing inventory is still in your stock.
Location – If you made an error while recording a stock transfer, such as inputting the wrong values, the inventory might be at the correct location. It just needs to be accounted for accordingly.
Item-level negative stock – This could be a serious one as it could indicate that there’s a problem with your manufacturing process. You’ll need to identify why your products or materials are coming in as negative stock during production.
But we understand this is still pretty vague, and we can’t go into specifics since manufacturers use all different types of inventory management software.
Although, the video below should give you a better understanding of how you can fix your negative inventory:
However, to help you understand how you might be able to fix negative inventory, we’ll look at how to fix negative inventory in QuickBooks Online as many manufacturers use QuickBooks for manufacturing.
Regardless of which software you’ve implemented, it’s always considered good practice to brush up on your manufacturing inventory management to help you identify and address any negative inventory in your business.
How to fix negative inventory in QuickBooks
First things first, you’ll need to log onto your account before you can locate your QuickBooks negative inventory.
Once logged on, to find your QuickBooks negative inventory, you’ll need to perform an Inventory Valuation Detail (IVD) report:
In the drop-down menu for “Dates” go ahead and select “All” to get a complete overview of your inventory transactions.
The “QTY On Hand” column will provide you with the data to determine where the QuickBooks negative inventory has occurred.
Once you’ve determined where the QuickBooks negative inventory happened, you can now go ahead and fix the problem by:
Selecting the negative inventory
Adjusting the dates of your bills and/or invoices so that the date of your bills is before your invoices. However, you can only do this if it’s legitimate
It’s important to know how to fix negative inventory in QuickBooks or on whatever software you use because if you don’t address your negative inventory, here are the issues that you will face:
What are the consequences of not fixing negative inventory?
Eliminate negative inventory with ERP manufacturing software
Katana ERP manufacturing software is the Swiss Army Knife of the manufacturing industry. The software has been built for manufacturers, using multiple tools to help any manufacturer, big or small, to get control over their:
But, more importantly, Katana helps manufacturers avoid generating negative inventory by giving you features such as:
Real-time master planning
Katana has a unique master planner that tracks your inventory transactions automatically and in real-time, giving you an accurate update of your stock levels immediately.
So, let’s say that you create a manufacturing order (MO). Katana will autonomously allocate available material to the open MO, so you know immediately if you have enough resources to begin production or if you need to order more materials.
In Katana, you can set a reorder point, which will allow Katana to highlight any products or materials which are starting to run low. Using reorder points allows you to keep safety stock to avoid confusion when stock levels reach zero.
Multilocation inventory management
With Katana, you can improve your multi-location inventory management, even if you’re using contract manufacturing to create some of your products. This feature allows you to monitor your inventory levels, regardless of where you store it, and perform stock transfers for products moving between locations.
Always remember that this could lead to negative inventory if you make a mistake, so be vigilant when sending and receiving stock.
Centralized sales channels
Many D2C manufacturers sell from different channels, from brick-and-mortar to e-commerce stores. Katana gives you a centralized point, so you can monitor all your channels from one ridiculously easy-to-read dashboard. This includes integrating and synchronizing your favorite e-commerce platforms, like Shopify or WooCommerce, so you can manage your sales, all from one place.
Integration with accounting software
And the same goes for your accounting software, and this is an important feature when it comes to tracking negative inventory. Regardless of if you use QuickBooks or Xero, Katana can integrate with your accounts, so you can easily manage your business in Katana and push all your invoices and bills to your accounting software.
If you want to get a better understanding of how Katana works, be sure to check out the video below:
All the tools above can help you avoid generating negative stock and help you optimize your business by giving you the features to implement lean inventory techniques into your business.
Negative inventory has the potential to become a homewrecker for your business. However, the idea is to start identifying negative stock as a problem and taking the necessary steps to remove this unwelcome guest from your processes.
How negative inventory will appear on your inventory management software will depend on the type of tool you’re using.
That’s why it’s best to get set up with a tool that has live updates so you can easily stay on top of your inventory’s movement.
Tools like Katana ERP manufacturing software can provide you with these convenient tools and more! Don’t take our word for it. Check it out for yourself. Katana offers a 14-day free trial, so you can explore the software for yourself and see how it can optimize your business.
That’s all for today! We hope that you enjoyed this article, and if you have any questions or concerns, feel free to let us know below or reach out to us on our social media channels.
And until next time, happy manufacturing.
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