How misunderstood ERP processes quietly distort stock, pricing and margin in merchanting and retail operations.
Most merchants and hardware retailers assume their stock systems are broadly accurate. Modern ERP platforms track thousands of products, process supplier deliveries and generate detailed margin reports. In reality, the reliability of those systems depends heavily on the human operational processes behind them.
Research into inventory accuracy by *René DeHoratius and Ananth Raman found that inventory records differed from physical stock counts in more than 60% of observations. While many discrepancies are small, they typically originate from human involved operational activities such as receiving, counting and transaction entry.
For merchants managing thousands of SKUs and frequent supplier deliveries, even small misunderstandings of system workflows can quietly create stock inaccuracies, pricing distortions and unreliable management reports.
When Processes and Systems Don’t Align
Modern ERP systems used in builders’ merchants support several purchasing workflows including standard stock purchases, direct supplier-to-customer orders and special orders for individual jobs.
Each of these transaction types behaves differently within the system. Some update the stock file while others bypass it entirely. If staff are unclear about how these workflows operate, errors can easily sneak into the system.
Real Example 1: ERP Process Error
In one merchant operation I observed, staff were able to place supplier purchases using a direct order setting designed for goods delivered straight from the supplier to the customer. However, staff later receipted these same orders using the normal goods-in process and raised Goods Received Notes (GRNs) as if the items were standard stock purchases.
This resulted in stock inaccuracies, distorted margin calculations and unreliable management reporting. The issue was not a failure of the ERP system itself but simply a misinterpreting of how the process should operate.
Real Example 2: Goods-In Process Failure
In another store I worked with, stock errors regularly originated at the goods-in stage due to weak processes, under-resourced teams and operational pressures.
In one instance a supplier delivery arrived and the goods were unloaded. The supplier delivery docket was signed and staff briefly glanced at the pallets before ticking the docket to indicate everything had been received. The checking process was entirely manual. There were no goods-in scanners to confirm that the correct items had been delivered, let alone verify the quantities.
A member of the back-office team later processed the Goods Received Note based purely on this visual check. There was no second verification, no record of who physically counted the goods and no follow-up cycle counts to confirm stock accuracy.
In effect, the only verification took place during the annual stocktake! By the time discrepancies were discovered it was far too late to investigate the original delivery. The only practical option was to adjust the stock valuation.
Why Goods-In Is a High-Risk Stage
Operations management research consistently identifies the receiving process as one of the most common sources of inventory inaccuracies.
This is the stage where products are counted, delivery documentation verified and system stock records updated. If an error occurs at this point it enters the stock file and may remain undetected for months.
Common Causes of Goods-In Errors
- Lack of structured checking procedures. Without defined processes staff may rely on quick visual checks rather than verifying quantities against purchase orders.
- Under-resourced teams. Goods-in areas are often staffed lightly compared with the volume of deliveries arriving each day.
- Pressure to clear deliveries quickly due to limited space in yards or warehouses.
- Manual checking processes without barcode scanning technology.
- Lack of accountability where no record exists of who checked a delivery.
- Infrequent stock verification where discrepancies are only discovered during annual stocktakes.
The Importance of the Three-Way Match
The most reliable control remains the traditional three-way matching process:
Purchase Order –> Delivery Note –> Goods Received Note.
When these match in product, quantity and cost price, the business can be confident that both stock and financial records are accurate.
Systems Rarely Fail – Processes Do
In some merchants, staff operate under pressure. Trade counters are busy, deliveries arrive unpredictably and many products look similar. Under these conditions shortcuts can become routine habits that slowly introduce data inaccuracies. Periodic reviews of purchasing and goods-in workflows often reveal operational gaps that have been quietly distorting stock records and margin reporting.
Merchant Takeaway
With management and team buy-in, training, documented processes and follow-up procedures, goods-in errors can be reduced to a minimum. Most stock inaccuracies originate from small process errors during purchasing or goods-in, so from today:
- Ensure staff understand the difference between stock orders, direct supplier deliveries and special orders.
- Regularly review how ERP processes are actually used in practice – not just how they were designed to work.
Source: DeHoratius, R. & Raman, A. (2008). Inventory Record Inaccuracy: An Empirical Analysis. Management Science, 54(4), 627–641.
David Gavin is a retail and merchanting professional based in Dublin. He has extensive experience in builders merchants, DIY stores and plumbing supply operations, with a focus on improving operational processes, stock accuracy and margin performance.
If you’d like a chat about any operational challenges you may face, please contact me at david.gavin@dazo.ie / 086 6004812
