Physical inventory counts don’t have to take up a lot of time. With the right strategies, they’re an effective and efficient way to track inventory.
Everything from year-end inventory counts to weekly cycle counts contributes to solid financial reporting, stock accuracy, and customer satisfaction. You just need a system and cadence that work for your business.
Here’s a guide to physical inventory counting methods and how to choose one that’s best for your business.
What’s a physical inventory count?
A physical inventory count manually counts items and compares the results to recorded figures. These are usually done at the beginning and end of each recording period to check accuracy and identify discrepancies.
Inventory counts are an effective way to quantify any kind of stock — finished products, raw materials, or intermediate goods. As for frequency, annual counts are standard. But more frequent counts, like weekly, monthly, or quarterly, are advisable if you manage inventory across multiple locations or have many SKUs. This minimizes the accounting errors caused by larger volumes of product.
Benefits of physical inventory counts
Regular inventory counts help you make informed decisions, reduce costs, and meet customers’ needs. Here’s how:
- Greater accuracy: Solid inventory management software prevents discrepancies, but these platforms rely on human inputs, which means there’s an opportunity for error. Physical counts help you double-check stock levels, correct any mistakes, and pinpoint the cause.
- Improved decision-making: Accurate inventory data leads to informed decisions about reordering, pricing, and resource allocation by providing the necessary insights to manage inventory confidently. This data also assists with forecasting and other core tasks.
- Reduced costs: Carrying excess stock gets expensive. By performing inventory counts regularly, you identify slow-moving stock or obsolete goods and reduce carrying costs. The goal is to keep the business lean while ensuring it has the products to keep up with demand.
- Increased efficiency: If you find frequent disparities between recorded stock and actual inventory, something needs to change. Use a physical count to investigate the problem, resolve it, and improve overall efficiency.
The 4 types of physical inventory counts
Physical inventory count procedures combine several options: manual or electronic, and full or cyclical. The best combination varies depending on business needs. A small business without comprehensive software might conduct a manual full count, while a more mature organization may perform electronic cycle counts.
Here’s more on each type of count.
1. Manual completion
Manual completion counts involve documenting every item in a warehouse or storage room by hand. Logging results with a pen and paper, spreadsheet, or other fillable form is best for organizations that don’t have a lot of inventory.
2. Electronic counting
Electronic procedures rely on product barcodes and handheld scanners. While the team must physically scan each product to count it, they won’t have to type or check each one manually — the software logs each item with each scan. This saves time and reduces the risk of errors.
3. Cycle counting
Cycle counting involves dividing stock into groups and checking them on different days, weeks, or months. This way, you don’t have to spend hours counting everything at once.
Establish a steady cycle for a more effective process. For example, count the product groups in the same months each year. If you audit group A in January, April, July, and October, repeat that same group in those same months next year.
4. Full inventory
A full inventory count is the most traditional approach to stock accounting. Set aside an entire day and log every product in the inventory. This process is time-consuming and potentially disrupts operations, but the upside is getting everything done at once.
Best practices for preparing a physical inventory count
Once you know the method that best aligns with the business’s needs and capabilities, set the stage to conduct inventory counts efficiently and accurately with these best practices.
Get organized
Organize the inventory area, like a store room or sales floor, and remove any obstructions, like furniture or packing materials. Make sure you have lots of room to sort product. If you have enough staff, divide them into teams and assign each one a designated area or product. Everyone involved should know their job and have what they need to do it properly.
Practice effective labeling
Products must have clear labels or barcodes, especially if you plan on performing electronic counts. The goal is to make the entire process as quick and painless as possible, and clear labeling keeps the momentum going.
Clear out obsolete or outdated stock
Remove or relocate any old, outmoded, or irrelevant product. If it’s not relevant to the count, it could distract people from the task at hand.
Prioritize communication
Relay the importance of conducting an accurate inventory count and set a process for flagging issues. Make sure team members know what to expect, how to log results, and what to do if they discover a discrepancy.
Double-check your counts
Both manual and electronic options are vulnerable to errors, and double-checking the final numbers helps you spot them. Assign two team members to every group or section, and instruct them to count everything and compare results. If the numbers from each group don’t match, count again to reach a consensus.
How to count physical inventory
Here are four basic steps to start counting inventory.
1. Schedule the count
Schedule the date ahead of time to minimize disruption and organize everything beforehand. Make sure you have enough team members working and they know how to complete the count efficiently.
2. Restock the floor
If you’re counting everything on a sales floor, fully stock it beforehand. Tracking inventory when products are organized on store shelves is much easier. Moving products out of back rooms and onto the selling floor saves time and limits confusion later.
If you’re in a warehouse, don’t worry about this step.
3. Explain the process
Review the process with the team, even if they’ve previously participated in physical inventory checks. Answer any questions, reiterate the importance of obtaining accurate numbers, and provide them with the necessary tools, like scanners and fillable forms. This step is especially important if you’ve changed methods since the last check or have new team members.
4. Assign locations
Assign locations and start the count. Divide employees into teams of two and assign each duo an area, or assign one person to multiple areas. Both methods require more than one person to log each area to improve accuracy.
After completing the count, compare the results with the records. Promptly address any discrepancies and try to pinpoint the source of the errors.
From audit to accuracy with Fishbowl
Conducting efficient inventory counts promotes better stock accuracy and overall efficiency. But you need the right inventory management system to maximize control, visibility, and operational efficiency.
Fishbowl is the all-in-one inventory platform that gives you the power to manage everything from warehouse operations to manufacturing. With Fishbowl, you’ll enjoy real-time inventory management capabilities and up-to-the-minute stock visibility. Book a demo today to learn more.