Taking Physical Inventory: How to Take Count of Inventory

It can be conducted for any type of product, from raw materials and works-in-progress (WIP) to packing materials. Smaller businesses, in particular, may struggle with the manpower needed to accurately count all inventory items, making the process even more challenging. One of the biggest challenges companies face with physical inventories is the required time and resources. Many businesses find it necessary to shut down parts or even all operations to conduct a thorough inventory. This disruption can lead to poor customer service, as operations are paused during the count.

Why is Physical Inventory Important in Accounting?

• Accurate inventory management is crucial for businesses of all sizes, directly influencing operational efficiency and financial health.
• This means your t-shirt inventory levels are 96% accurate and that your shrinkage rate is 4%.
• After the data has been transferred to the system of record, it’s time to assess its impact on financial statements.
• When setting your timeframe, consider the square footage of your warehouse, the size of your team, and the amount of inventory.
• Inventory is not static, and items may continue to move during the counting process.
• It involves manually counting and verifying the actual quantities of products in stock and comparing them with the recorded figures in the inventory management system.

Familiarize them with counting procedures, the use of technology, and the importance of accuracy in the process. Well-trained staff are more efficient and contribute to the overall success of the count. This count focuses specifically on high-value or critical items that have a substantial impact on the business’s operations or financials.

Why is Physical Inventory Important?

Perpetual inventory systems continuously track inventory levels in real-time, updating records with each transaction. This method is commonly employed by larger businesses with high transaction volumes and the resources to invest in advanced inventory management software. Perpetual inventory offers several benefits, including improved accuracy, reduced risk of stockouts, and enhanced ability to detect discrepancies promptly.

On the day of the count, begin by confirming that all preparatory measures have been completed physical inventory and that all inventory is ready to be counted. Ensure that the inventory team is on-site, that they understand their responsibilities, and have all the necessary equipment and materials. There are many reasons why taking a physical count of inventory is important to your business.

#1 – Complete Physical Inventory Count

• From a business perspective, an accurate inventory count can influence several essential elements of a company’s operations.
• To address this challenge, businesses should consider implementing a cutoff time for stock movement before the count begins and clearly communicate it to all involved parties.
• In other words, a manufacturing company can ensure a year-round supply of goods in order to ensure predictably higher sales during the holiday season.
• Conducting a physical inventory count offers a wide range of benefits to businesses, from ensuring accurate inventory records and financial reporting to optimizing supply chain operations and enhancing customer service.
• For high-value or critical items, implement a double-count verification process.
• This functionality has allowed Artos to allocate inventory for orders and still maintain a high level of accuracy in their stock.

Embrace an organized system that reduces confusion, saves time, and ensures efficient order fulfillment. To simplify the counting process, divide the inventory into manageable sections or zones. Assign teams to count specific sections, reducing the risk of errors and making the overall process more efficient. Accurate inventory data resulting from physical inventory provides decision-makers with reliable information. This confidence in decision-making leads to more effective strategies, better resource allocation, and ultimately, improved business outcomes.

Best Practices and Strategies for Effective Physical Inventory Count

These items are counted more frequently to ensure their accuracy and to prevent any potential losses. On the other hand, it also helps prevent overstocking, which ties up valuable working capital and leads to increased holding costs. By right-sizing inventory levels, businesses can strike a balance between supply and demand. This involves cleaning and arranging the stock in a manner that facilitates easy counting.

In this article, we will discover various aspects of physical inventory count, its best practices and tips, and how it helps maintain accurate account records. There are several methods of physical inventory counting, including the periodic method, the perpetual method, and the cycle counting method. The periodic method involves a physical count of all inventory items at the end of a specific period, while the perpetual method involves continuous tracking of inventory using a computerized system. The cycle counting method involves dividing inventory into smaller, manageable batches and conducting physical counts at different intervals throughout the year.

Recount the physical stock, if needed, and do some investigating to figure out what might have caused the discrepancy. Explain how to record the figures—either manually with a pen and paper, with a spreadsheet, or with a bar code scanner and mobile POS—and show staff how to add notes if an item is faulty, damaged, or missing a tag. The discrepancy between inventory on hand and demand for that inventory (otherwise known as overstocking) can lead to markdowns. While discounting has its uses, discounting at scale results in lost revenue as a result of lower-than-expected margins on each sale.

From a DTC perspective, finished goods are an online brand’s most important asset. Finished goods are categorized by SKUs and deemed ready to sell to the end user once they’ve been received by the manufacture or supplier and stored until items are ready to be picked, packed, or kitted. Work in process inventory (WIP) refers to partially manufactured goods that are currently in the production phase.