Our client, a large retailer of outdoor equipment and apparel, had identified a $12 million unexplained inventory variance between its financial and operational systems. The client believed the variance involved the allocation of costs from the distribution company to its selling channel. However, the variance still could not be identified even after the client deployed an internal team to research it.

Protiviti’s Supply Chain and Loss Prevention professionals collaborated to perform a four-week assessment of our client’s procure-to-pay and inventory management processes. This involved analyzing data around various areas within the specific processes to prove or disprove potential root causes identified by our client’s key process owners. In addition, the engagement team conducted interviews with individuals from the field to complement the data analysis and further uncover potential process risk and operational breakdowns.

Protiviti’s analysis identified a $12 million inventory variance, due to the following causes:

1. $5 million matching variance. Our client had overpaid invoices in comparison to actual items received. The poor percentage of auto-matched invoices (only 55 percent) required manual intervention from an accounts payable department that had been affected by high turnover and understaffing.
2. $2.6 million in duplicate receipts. Our client’s stores were receiving data using two poorly integrated systems, which resulted in inventory receipts being duplicated.
3. $2.5 million freight variance. Our client used freight standards and did not accurately capture the difference between standard and actual freight costs, which had an impact on inventory valuation.
4. $1.3 million unit of measure discrepancy. Our client had used different buy and sell units of measure that were not accurate across multiple systems. This had an impact on how inventory was stored.

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Protiviti's Supply Chain Solutions help clients assess, design and implement integrated supply chain capabilities that enhance performance, reliability and control in a cost-effective and efficient manner. Our results are measurable and directly benefit internal and external stakeholders.

Protiviti (www.protiviti.com) is a global business consulting and internal audit firm composed of experts specializing in risk, advisory and transaction services. The firm helps solve problems in finance and transactions, operations, technology, litigation, governance, risk, and compliance. Protiviti’s highly trained, results-oriented professionals provide a unique perspective on a wide range of critical business issues for clients in the Americas, Asia-Pacific, Europe and the Middle East.

Protiviti has more than 60 locations worldwide and is a wholly owned subsidiary of Robert Half International Inc. (NYSE symbol: RHI). Founded in 1948, Robert Half International is a member of the S&P 500 index.