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Inventory Count: Everything You Need to Know in 2024

2.4 Minutes

In this article, we will cover what inventory count is and its importance. We also share our step-by-step process to conduct physical inventory counts. Read on to learn more. 

inventory count

What is Inventory Count?

An inventory count validates the quantities and conditions of items in a company's stock. It involves tallying items manually or technologically and comparing results with recorded levels to correct discrepancies.

Example: During the annual inventory count at a tech store, employees counted 150 iPhone 13s and 75 Samsung Galaxy S22s on the shelves and compared these numbers to the 160 iPhones and 80 Galaxies recorded in the inventory system to adjust discrepancies.

physical inventory count

Types of Inventory Count

There are numerous types of inventory counts that are used in different contexts. Here are some of the most common types:

1. Periodic Count:

This type of count occurs at regular intervals, often annually or semi-annually, where every item in the inventory is counted and recorded. It's a complete audit of the inventory to adjust the book records according to the actual physical stock.

2. Cycle Counting:

Cycle counting involves counting a small portion of the inventory regularly, so over a specified period (often a year), the entire inventory gets counted. This method is popular because it reduces the disruption caused by counting the entire inventory at once.

3. Physical Inventory Count:

This is a thorough counting process where every item in the inventory is counted manually. It's often done at the end of the fiscal year and serves to reconcile the book inventory with the physical inventory.

4. Perpetual Count:

In perpetual counting, the inventory levels are updated in real-time or near-real-time as items are added or removed from the inventory. This method often involves barcode scanning and sophisticated inventory management systems.

5. ABC Counting:

In this method, items are categorized into three categories (A, B, C) based on their importance, value, or sales volume. Category A items are counted more frequently than B and C items, ensuring that the most valuable or fast-moving items are always accounted for.

6. Spot Checking:

Spot checking is not a comprehensive count but involves counting a small number of items to quickly verify their levels. It can be used as a supplemental method to other counting types, especially for items that are suspected to have discrepancies.

7. Zero-Counts:

These are specialized counts that focus on items that are recorded as out-of-stock in the system. The goal is to confirm that these items are indeed out of stock, and if not, the inventory records are updated accordingly.

physical counts of inventory

Importance of Inventory Count

Taking a physical count of inventory is important for a number of reasons. Below are some of the most common reasons:

1. Accuracy in Financial Reporting

Inventory counts ensure accurate inventory values impacting financial statements. They uphold the integrity of a company's financial position aiding decision-making and compliance with accounting standards.

2. Operational Efficiency 

Counts ensure stock levels are accurately known to support order fulfillment and efficient planning. This alignment reduces holding costs and avoids stockouts or overstocking.

3. Risk Management

Inventory counts identify losses and support audit processes enhancing regulatory compliance. They enable corrective actions and uphold governance standards.

4. Informed Business Strategies 

Counts provide insights into sales trends and product performance. This data aids the development of strategies for optimizing procurement to meet demand.

5. Customer Satisfaction 

Accurate inventory ensures timely order fulfillment that enhances the customer experience. It reduces stockouts which increases customer loyalty and positive reviews.

6. Supply Chain Management 

Counts offer real-time stock data to optimize supply chain processes. They enhance supplier collaboration, efficient resource allocation, and cost reduction.

taking a physical count of inventory

10 Step Physical Inventory Count Process

To ensure accurate stock levels and financial records, you can follow our simple 10 step process below.

Step 1. Preparation

Prepare for the inventory count by organizing all materials and resources needed. Ensure all inventory is accessible and adequately lit to facilitate an accurate count.

Example: All the office supplies, including pens, notepads, and markers are arranged systematically on the shelves. The counting team is equipped with clipboards and pens to record the inventory and extra lighting is installed to ensure visibility.

Step 2. Schedule and Team Assignment

Set a specific date and time for the inventory count and assign roles to team members. Ensure that each team member is clear on their responsibilities and areas to cover.

Example: The inventory count is scheduled for October 15, starting at 9 AM. John is assigned to count office supplies, while Sarah will focus on the electronic equipment including laptops and printers.

Step 3. Establish Counting Methods

Decide on the methods and tools to count the inventory. These could include manual counting, bar code scanning, or using inventory management software.

Example: The team decides to use barcode scanners to quickly and accurately count the 500 widgets and 300 gizmos in the warehouse. Each item’s barcode is scanned and the count is automatically recorded in the inventory management system.

Step 4. Execute the Count

Count each item systematically and record the quantities accurately. Ensure that each item is counted only once to avoid discrepancies.

Example: Sarah counts 50 laptops and 75 printers marking each counted item with a removable sticker. John records 200 pens, 150 notepads, and 500 markers ensuring no item is counted twice.

Step 5. Reconciliation

Compare the physical count results with the existing inventory records. Identify any discrepancies and investigate the causes to correct them.

Example: The team discovers that the physical count of widgets is 480, while the records indicate 500. They investigated and found that 20 widgets were damaged in transit and not yet reported.

Step 6. Adjustments and Verification

Make necessary adjustments to the inventory records based on the physical count. Verify the updated records to ensure accuracy.

Example: The records are updated to reflect the actual count of 480 widgets and 300 gizmos. A double-check is performed to ensure that the updated counts match the physical inventory.

Step 7. Analysis

Analyze the data to gain insights into inventory turnover, discrepancies, and other key metrics. Utilize this information for future inventory management improvements.

Example: The team analyzes the data and notices a slow turnover rate for gizmos. They decided to reduce order quantities for gizmos in the future, focusing on increasing the stock of fast-moving widgets.

Step 8. Reporting

Compile a comprehensive report detailing the inventory count results, discrepancies, and actions taken. Share this report with stakeholders for informed decision-making.

Example: A report indicating the count of 480 widgets, 300 gizmos, 50 laptops, and other items is prepared and shared with management. The report highlights the discrepancy of 20 damaged widgets and the decision to adjust future orders based on turnover rates.

Step 9. Review and Improve

Review the entire inventory count process to identify areas for improvement. Implement changes to make future counts more efficient and accurate.

Example: The review identifies that the counting process took longer due to manual recording. The team decided to invest in an advanced inventory management system to automate the recording and reconciliation process for future counts.

Step 10. Continuous Monitoring

Implement continuous monitoring mechanisms to maintain accurate inventory records between physical counts. Use technology to automate this process where possible.

Example: An inventory management system is set up to monitor stock levels in real time. It sends alerts when the stock of widgets falls below 50, enabling timely reordering to avoid stockouts.

inventory counts

Case Study Example

TechTrend Electronics is an electronics retailer that initiated physical counts of inventory to ensure the accuracy of its stock records and optimize inventory levels. Let’s explore how the company implemented our 10-step process outlined below.

Step 1. Preparation

TechTrend Electronics starts by ensuring all products, including smartphones, tablets, and accessories are neatly organized on the shelves. The counting team is equipped with tablets for recording inventory and additional lighting is installed to illuminate every corner of the warehouse ensuring an accurate and efficient counting process.

Step 2. Schedule and Team Assignment

The inventory count at TechTrend is scheduled for November 20, starting at 8 AM. Alex is assigned to count smartphones, Bella takes on laptops, and Charlie is responsible for accessories. Each team member is trained and clear on their specific tasks to ensure a systematic and organized counting process.

Step 3. Establish Counting Methods

At TechTrend, barcode scanners are the preferred tool for counting inventory. Alex scans the barcodes of each smartphone model ensuring quick and accurate data entry. The counts are automatically updated in real time in the inventory management system.

Step 4. Execute the Count

Alex counts 150 iPhones, 200 Samsung Galaxy phones, and 100 Google Pixels, marking each counted item with a removable sticker to avoid double-counting. Bella and Charlie follow a similar systematic process for their assigned inventory categories.

Step 5. Reconciliation

After counting, TechTrend’s team compares the physical counts to the inventory records. They find a discrepancy of 10 iPhones less than the records indicate. Upon investigation, it was discovered that these were returns that hadn’t been updated in the system.

Step 6. Adjustments and Verification

The inventory records are updated to reflect the actual counts: 150 iPhones, 200 Samsung Galaxy phones, and 100 Google Pixels. The team double-checks to confirm the accuracy of the updated records ensuring that the figures match the physical count.

Step 7. Analysis

TechTrend Electronics analyzes the count data and identifies a slow turnover rate for Google Pixels. They decided to reduce future order quantities for this model and focus on increasing stock levels for fast-selling iPhone and Samsung Galaxy models.

Step 8. Reporting

A detailed report, including the counts and discrepancies identified, is prepared and shared with TechTrend’s management. The report highlights the 10 iPhone discrepancies and the decisions made regarding future stock orders based on the turnover rates.

Step 9. Review and Improve

The TechTrend team reviews the inventory count process and identifies an opportunity to enhance efficiency by upgrading their inventory management software to a version that supports real-time data syncing across multiple devices, facilitating quicker counts and updates.

Step 10. Continuous Monitoring

TechTrend implements a real-time inventory tracking system that monitors stock levels continuously. Automated alerts are set up to notify the management when the stock of iPhones falls below 20 enabling timely reordering to avoid stockouts and meet customer demand efficiently.

We hope that you now have a better understanding of what inventory count is and how to implement our physical inventory count process to ensure accurate inventory levels. 

If you enjoyed this article, you might also like our article on the definition of physical inventory or inventory counting. 

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