How To Do Inventory Counting Effectively

Inventory counting is a standard procedure conducted within warehouses to accurately assess stock levels and their respective locations. This practice is essential for effective planning of procurement and logistics distribution activities.

The following outlines various methods for performing physical inventory counts in the warehouse, along with best measures to enhance this process.

Definition of Physical Inventory

Physical inventory refers to the systematic, detailed, and valued enumeration of goods held by the company. The process of conducting a physical inventory check involves reconciling the actual stock present in the warehouse with the records maintained in the company's database or IT system at a specific point in time.

The primary objectives of the inventory count include identifying:

• Damaged or expired items.
• Obsolete stock resulting from product replacements or modifications.
• Discrepancies arising from human error or system inaccuracies.
• Missing goods, commonly referred to as shrinkage, which may occur due to theft or other incidents.

Upon completion of the inventory count audit, the manager is required to generate a report that outlines the inventory variance in terms of percentage, value, and unit count. Additionally, the report should emphasize the most significant discrepancies identified, along with potential causes and recommended corrective actions.

Types of Inventory Classification

Inventory counts can be categorized into the following types:

• Annual Inventory: An annual inventory count is essential for the preparation of a company's annual financial statements. This method is predominantly utilized by organizations with a limited number of stock-keeping units (SKUs). However, its infrequent nature poses challenges in analyzing discrepancies and implementing timely corrective measures.
• Periodic Inventory: Inventory counts are conducted at specified intervals, such as monthly or quarterly. These counts are typically scheduled during periods of lower goods movement to minimize disruption to regular warehouse operations.
• Real-Time Inventory: This approach necessitates an automated system that enables real-time updates of inventory data. Such a system tracks all movements of goods without halting operations, thereby facilitating effective management of procurement and replenishment of SKUs.

To conduct a physical inventory count in the warehouse, several essential steps must be undertaken, irrespective of the technology employed:

1. Establish the methodology: This will be influenced by the nature of the goods stored. It is crucial to determine which items will be included in the inventory and the method of quantification (by unit, volume, weight, value, etc.). The selection of SKUs for counting may be prioritized based on stock turnover value, location, or product category.
2. Educate your team of operators: The team must be well-informed about the specific procedures to follow for each area of the warehouse designated for inventory. They should also be trained in the use of any necessary tools and provided with relevant instructions (such as the removal of obsolete stock).
3. Utilize off-peak periods: It is vital to consider seasonal fluctuations and schedule inventory counts during times of reduced activity to minimize disruption to warehouse operations.
4. Inform suppliers: Notify suppliers and customers ahead of the inventory count to reduce the likelihood of any interruptions.
5. Verify your tools and documentation: Ensuring that all tools and documentation are in order will facilitate a smoother performance of the inventory audit and help avoid last-minute complications.