We’ve all heard horror stories about the dreaded annual physical inventory count: Scaling shelving to verify the inventory of hundreds of boxes; figuring out you were using outdated pricing sheets and having to reconcile against every invoice from the previous year to match pricing; and concluding that 40 errors in the count were just miscounted after an extra three hours because everyone is sleep deprived at 2am. Nonetheless, the annual physical inventory count has to be done, every year, whether we like it or not.
The new year signals to retailers, manufacturers and wholesale distributors that it’s time to conduct physical inventory counts. Although the process can be painstaking, it’s critical for every product company to ensure its inventory records and financial statements are accurate and up-to-date – especially at the start of a fiscal year. This is especially true after an irregular holiday season with costly supply chain disruptions and higher-than-normal return rates throughout 2021.
There are two types of inventory counts: cycle counting and full inventory counting. For a full inventory count – companies need to repurpose staff or bring in additional help to physically count all stock, compare the results to the inventory record and investigate/reconcile any discrepancies. Depending on the volume of inventory, this may require an operational shutdown or after hours work for its labor-and-time intensive process. The amount of time required for a full inventory count is not realistic for companies to frequently conduct; therefore cycle counts – the process to confirm physical inventory counts match their inventory records and recording adjustments when not – should be conducted on a regular basis, if not daily, to ensure accuracy in inventory management and forecasting.
While relying on an automated system is much easier, conducting a physical stock count (even if it’s only once or twice a year) benefits businesses from more than a compliance standpoint. The process also helps your business maintain profitability for three key reasons: it minimizes the loss, damage and theft of inventory (known as shrinkage); it creates better customer experiences by knowing exactly how much of a product you have on hand and where it is stored; and it enables you to make more informed decisions about suppliers, distributors, forecasts and customer demand.
Now that we know why a physical inventory count is crucial to the success of your business, here are three tips to make this necessary evil a smooth process:
1. Set a Date and Mark Your Staff’s Calendars
Physical counts are often conducted at the end of the fiscal year to ensure inventory is accurately recorded on the balance sheet. No matter when your fiscal year starts/ends, January and February are typically good times to conduct a full inventory count because these month brings low stock numbers and slower traffic following the holiday season.
Depending on the amount of stock where it is located – the physical count may inhibit normal business hours, receiving deliveries and potential fulfillment days. Therefore, it is best to pick a time that is outside of normal business hours, or at the very least, a time that is generally not busy. This will ensure you have uninterrupted time to conduct the count and rectify any discrepancies without interfering with the customer experience.
Performing a cost analysis of salaries and overtime to determine how much it costs to perform a count will help you identify which staff should take part in the count. If your business is larger, it may be better for your bottom line to hire and train outside temporary help as it frees up some of your regular staff to continue necessary operations.
Finally, the earlier you mark the company calendar for inventory day – the better. This process is not a one-man job, so it’s best to schedule this day well in advance to ensure you have the right team members available to help.
2. Organization and Planning is Key
There is no such thing as being “overly prepared” for a physical inventory count.
In order to avoid extra work on inventory day, take some time to tidy and organize the warehouse or retail location. Make sure everything is neatly stored while taking note of where items are located. This will help accelerate the counting process easier and goes a long way in guaranteeing all the inventory is accurately accounted for.
Once everything is organized, draft a plan (or even a map) of the space and decide where your team will begin within the room. Outlining a physical path around the store or warehouse will ensure all team members involved are working in unison and not interfering with the count, or even mixing up inventory that has (or hasn’t) been accounted for. When drafting the plan, be sure to include detailed information about exactly where products are located, ideally down to zone, aisle, shelf or bin numbers. This will prevent team members from wandering around the space trying to locate products.
3. Technology is Here to Help
While manual counting is essential for physical inventory counts, keeping record of inventory with a pen and paper is not. Mobile devices with scanners allow counters to scan bins and items within them, generating more accurate counts than writing things down. Using a scanner also allows for tracking by lots and serial numbers and minimizes human errors.
Although inventory and warehouse management systems cannot replace full physical stock counts, they can expedite the process and ensure that your inventory is up to date on a regular basis. Based on the time and energy needed for physical counts, having these systems in place is well worth the investment to make the process faster, easier and less chaotic. Together – automated counts and physical counts can serve as a “checks and balances” system to ensure real-time accuracy for all your inventory.
Lisa Schwarz is Senior Director of Global Product Marketing for the Oracle NetSuite Global Business Unit. She is responsible for driving the go-to-market messaging and positioning for NetSuite solutions.