One, Two, Three -
It’s Inventory…..
Physical Count Time

by Sharmi Duncan

You know what it's like when it’s "that time of year" again! As you move into the holiday season and closer to the end of the year, many businesses are preparing for another fiscal year-end closing. With the end of the fiscal calendar comes pressure to close deals, ship product, meet revenue targets, and—my favorite—conduct the year-end physical count.

Over the years, I’ve done my fair share of physical counts. I’ve worked for companies that did monthly, bi-annual, and annual counts. I’ve seen the mayhem that plagues organizations with no organization. I’ve worked with newbie auditors who have never been inside a warehouse. They were always my favorite. I’ve participated in great physical counts and awful ones, and I’ve learned a thing or two about excellent inventory control and accuracy. During my years as an ops director, we conducted an annual (audited) count, and our accuracy measured in dollars/units was consistently equal to or better than 99.9 %, which is considered Best-in-Class performance.

I share with you here some tips that have helped me out along the way.

Five Tips for Conducting a Physical Inventory Count

1. A good count doesn’t start at year's end. Inventory control is a function of process and discipline. If you don’t have solid control processes in place throughout the year, then don’t expect to have a good count at the end of the year. Don’t use your physical count as a clean-up mechanism to compensate for lacking inventory controls. If you don’t have control of your inventory, then make it a priority at year's end to define your inventory processes and get control immediately. The beginning of the new year is your opportunity to correct the mistakes of the past, rather than perpetuate them going forward.

2. If your warehouse reports an out-of-stock (OOS) product and your systems tell you that inventory exists, then go find it. Inventory inaccuracies will compound themselves at year's end if they aren’t addressed when they originally appear. Sometimes the problem isn’t at the warehouse. Check with your accounting department—errors are often the result of creative accounting tactics, such as credit memos to customers, invoices posted against the wrong DC, and so on. When inventory problems arise, find the source immediately and resolve the issue. This will minimize variances during the physical count.

3. There is always someone with intimate domain knowledge of the inventory. This person is a hugely valuable resource during counts, so utilize them! In a warehouse, many boxes look alike, and sometimes the SKU numbers are very similar. This can cause confusion and mistakes during the physical count. The person with intimate knowledge of the inventory can quickly identify miscounts and variances.

4. Involve cross-functional teams. Physical counts are not a warehouse-only function. In many businesses, the warehouse is treated like a separate entity. Using a cross-functional team accomplishes a number of goals. It is an educational and team-building opportunity for the organization. The people who buy the products, sell the products, market the products, and answer calls about the products gain insight into the supply chain, which makes them better at their jobs. Using teams is more efficient, so pair up an accounting person with a warehouse person. They work well together.

5. Allow sufficient time to conduct the count. Inventory is an organization’s greatest asset. Right now some people may be thinking, no it’s the people. For the record, PEOPLE ARE NOT ASSETS. THEY ARE RESOURCES. Inventory is an asset. It is an investment, and your company’s cash is tied up in it, so when it’s time to conduct the physical count it is worth it to allow sufficient time to do the job right. A few extra hours once a year is nothing, but a variance that could cost the company tens of thousands of dollars is significant, so don’t sweat the team during the count. Be patient and get to the results.

As the year winds down, I’m getting ready for another physical count. As an ops chick, you never escape them. The company lacks inventory control processes, so we are defining them. Their inventory is out of whack, so we are investigating that today rather than during the count. And when we count inventory, we will do it as a team. This year’s accuracy will not be Best-in-Class, but next year’s will be.

So, how about you? How ready is your company for this year’s count?

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