Keeping track of inventory is a crucial practice for businesses. It involves physically counting and verifying the items in stock at a specific point in time to accurately assess and record the quantity of goods or products they hold. This helps companies maintain precise inventory records, identify discrepancies, and make informed decisions regarding their stock management.
In this post, we will explain everything you need to know about counting physical inventory!
4 Types of Physical Inventory
To keep track of inventory manually, paper count cards and pencils are typically used. While this method is inexpensive, it tends to result in a high number of errors. For example, there’s a chance of human error during data entry. A staff member may misread a number or transpose digits, leading to incorrect inventory records.
Electronic counting uses electronic devices. Such devices are scanners, RFID, barcodes, or mobile devices. These can significantly decrease the risk of counting errors such us requiring extra time and resources to complete the process.
Cycle counting is a method where staff randomly count parts or sections of inventory at different times. This helps reduce the need for additional resources and time during counting. It also allows companies to continue their operations. Some businesses, unfortunately, neglect this important task. As a result, they may face inventory management issues.
Full inventory requires companies to assign existing staff or hire temporary staff to count all the stock at once. This method ensures accurate inventory records for creating the annual financial document. However, it may necessitate an operational shutdown and is labor and time-intensive.
How to Count Physical Inventory
1. Order count tags
Order enough two-part count tags to cover the amount of inventory that will be counted. These tags should be numbered sequentially so that they may be tracked individually during the counting process.
2. Preview inventory
Before the scheduled inventory count, it is essential to review the inventory a few days in advance. If there are any missing part numbers or items that seem difficult to count (e.g., not properly bagged or boxed), it would be suggested to inform the warehouse staff to make the required corrections.
3. Pre-count inventory
Before the actual count, conduct a pre-count of products that can be stored in sealed containers. Place and label them with their respective quantities in the containers. This makes the counting process easier during the official count. If a seal is broken, the counting team will be aware that the container’s contents need to be recounted.
4. Complete data entry
Perform any necessary data entry transactions before the physical inventory count. This includes issuances from the warehouse, returns to the warehouse, and transfers between bin locations within the warehouse.
5. Notify outside storage locations
Inform all external storage facilities or third-party sites responsible for holding company merchandise on consignment to conduct a count of their inventory on the official count date. After the count, they should provide this information to the warehouse manager.
6. Freeze warehouse activities
Stop receiving deliveries from the warehouse and set aside any newly acquired goods in a designated area. This way you can avoid counting them during the inventory count. This ensures that the inventory records remain stable and reliable during the counting process.
7. Instruct count teams
Form teams of two people to conduct the inventory count and provide them with proper training. Each team member will have specific roles: one will count the inventory, and the other will record the data on a count tag. The count tag will have two copies – one attached to the inventory, and the other retained by the team.
8. Issue tags
An inventory clerk provides count teams with blocks of count tags. Each team is responsible for returning a specific numeric range of count tags, regardless of whether the tags are used. This control ensures that any missing tags are promptly investigated.
9. Assign count areas
Give each count team a designated range of bins to count and mark these locations on a warehouse map with a highlighter. The inventory clerk should maintain a master list to track the counted areas and the teams assigned to each section.
10. Count inventory
In each team, one person counts the items in a bin. The other records details like bin location, item description, part number, quantity, and unit of measure on a count tag. The team keeps the original tag and attaches it to the matching inventory item.
11. Verify tags
After finishing the count in a designated area, each count team reports back to the inventory clerk. The clerk then verifies that all count tags were returned. If there are still more warehouse areas to be counted, the inventory clerk assigns new areas to the count teams. All they have to do is provide them with new blocks of count tags as needed.
12. Enter tag information
Use an online data entry form to input the information from the count tags. Generate a report that displays all the tag numbers in ascending order. This allows you to review and identify any number discrepancies, if present. This verification process ensures that the file contains all the count tags that were issued.
13. Investigate unusual results
Re-sort the inventory report in a few different ways to locate unusual data, and check the tag entry connected with each inventory.
14. Use inventory management software
Conducting a precise physical inventory count requires significant time and effort. This leads organizations to limit the number of counts they do each year. However, an inventory management software can streamline the process, ensuring both speed and accuracy of inventory data and records. By using inventory software, you can reduce your workload and save valuable time.
In conclusion, inventory counting is vital for businesses to maintain accurate stock records. Different counting methods, like manual, electronic, or cycle counting, each have their pros and cons. The main goal is to ensure inventory accuracy, optimize operations, and make informed decisions. Regular and precise inventory counts help identify discrepancies, control costs, and prevent stockouts. Ultimately, this enhances overall efficiency and profitability for the company.