Simplifying Your Physical Inventory Process

Every company is faced with the daunting task of conducting a physical inventory. Although there are many reasons for conducting a physical inventory, the main purpose is to determine what you actually have in stock and adjust your records to reflect this.

No company likes to spend time counting parts. Likewise, not many employees enjoy this task, but it has to be done. The trick is to make the physical inventory process as painless as possible, while still providing the results you need.

A successful physical inventory is well planned. Planning should begin about three months before the count date and should address the following issues:

• Set the count date(s). Estimate the amount of time you will need for counting and reconciliation activities, and give everyone plenty of notice. If you have several locations but limited management personnel available to supervise the counting process, consider counting each location on a different date.
• Determine who will count. It is best to count the parts using teams of two people. Ideally, you should pair an experienced employee with someone with less knowledge of the material. The experienced person counts the material while the inexperienced person records the quantity. Forming count teams allows you to best utilize the talents of your most experienced personnel, while allowing inexperienced employees to gain valuable product knowledge.
• Order the necessary supplies. Determine what supplies you will need to conduct your inventory count. Order these supplies far enough in advance to assure everything is available when the counts begin.
• Clean up your warehouse. If all of the material in your warehouse is in its proper location, you will be able to conduct a faster, more accurate physical inventory. Don’t forget to clean out the returned goods area. Every item in that area should either be returned to its proper location, returned to the vendor, repaired or thrown out.

The physical inventory itself can be simplified if you follow these ten steps:

1. Break up the overall counting process into a series of smaller counts. Counting thousands of parts is a formidable task. However, if you can break up this total into a number of subtotals, employees will not be as overwhelmed or discouraged. Smaller, manageable count quantities also help to prevent aisles, bins and remote storage areas from being missed.
2. Create a map of the warehouse. This map should include every shelf, pallet rack and all other places where material is stored. Such a map is helpful for inexperienced employees but can also be a useful refresher to seasoned warehouse personnel.
3. Divide the counters by specific area so they can be held accountable.
4. Count as many parts as possible prior to the scheduled count date. Parts in remote, slow moving areas can be counted in advance as long as there will be no transactions prior to the physical inventory. Pre-counted parts need to be marked to avoid double counting.
5. Ship everything you can before the physical begins—you don’t have to count what is not in the warehouse.
   Do not move material while you count. Record “misplaced” material where it lies, and mark it so it can be moved as soon as the inventory is completed.
6. Do not fill orders or receive material during the count process. If you must ship an “emergency” order while your inventory is underway, an auditor must determine how this affects the physical count and make the necessary adjustments.
7. Audit while people are still counting. As soon as counters are finished with a small section of bins or shelves in their assigned areas, auditors should verify some of the counts. If an auditor finds several counting errors in an area, the count team assigned should recount the entire section.
8. Print and review discrepancy reports. These reports should list any item with a significant difference between the on-hand balance in the computer (before the physical) and the counted quantity.
9. Review your successes and record your procedures. Sit down with everyone who participated in the physical inventory and find out what worked well, and what did not, so improvements can be made before the next physical inventory.
10. A physical inventory is just like any other process in your organization. Following the preceding guidelines will help assure your physical inventory process works well.