Taking a Physical Count of Inventory

Running a small business means juggling a million tasks at once, and keeping track of inventory can feel like one more ball in the air. But let’s face it—accurate inventory management can make or break your business.

A physical count of inventory involves systematically counting all items in stock to ensure your records match what’s actually on your shelves. This process helps you catch discrepancies, prevent stockouts, and maintain financial accuracy.

Why Use Inventory Management for a Physical Count?

Employing a system for managing inventory serves several purposes. In addition to merely knowing what items are in stock, business managers gain insights into:

• Actual sales versus projected sales
• If and when loss and damages occur
• Imbalances in order quantities
• Spoilage costs for food service companies and flower shops
• Physical space usage for storage and displays

But to glean these insights, retailers, restaurant owners, and all businesses with physical inventory need the right techniques to stay on track.

Organizing Physical Inventory

Proper inventory management requires organization of products and supplies. From the back room to the sales floor in retail settings or from the pantry and stock room to the kitchen in restaurants, bakeries, and coffee shops, physical items should be stored in a manner that allows for an accurate count of stock levels.

Employees and managers should be trained on proper stocking techniques such as:

• Clearly labeling storage and sales areas by item type, size, color, or other identifying features
• Properly rotating perishable items for spoilage reduction
• Avoiding duplicate storage areas for the same item
• Knowing all areas for items, especially those with multiple sales or usage areas

Cataloging Inventory

Cataloguing physical inventory can be done manually or with a point of sale (POS) system, which you can also use to clock in and out of shifts. Some small businesses or businesses with few items and supplies can get by with a manual cataloguing system using hand-written lists or spreadsheets.

But the more inventory a business uses, the more tedious and prone to mistakes a manual system becomes. A POS system can track inventory as it’s sold and can also be used for a physical count to verify inventory levels, make special orders, or when introducing new products or items into the inventory.

Two critical issues for cataloguing effectively are:

1. Categorization: Proper categorization of items can help reduce shortages and overstocking while still keeping needed items in stock.
2. Forecasting Considerations: Outside components that may affect inventory include seasonal considerations, weather events, holiday drive-times, or catastrophes that affect supply and demand.

Counting Stock and Supplies

Successful businesses generally have a good idea of what’s in stock and what’s needed, especially if they have real-time knowledge of inventory counts from a POS system. But physical counts come in handy in many instances:

• When increasing or decreasing storage areas, redesigning sales areas, or revamping menus
• During rebranding or change of business focus
• To prepare for seasonal sales, promotions, or to closeout product lines
• When performing end-of-year inventory

A physical count of every single item in inventory takes a lot of manpower and resources. This is why estimating inventory can come in handy when an absolute inventory isn’t necessary. But a physical count, whether it involves a degree of estimation or an absolute count, is necessary at times to track what is and isn’t selling, determine shrinkage, and reduce dead inventory.

Instead of spending valuable resources on a total inventory count, cycle counting is another method that has proven useful in inventory management.

Cycle counting uses a sampling technique in which only a portion of the stock is inventoried at one time. It’s particularly useful for businesses with warehouse storage or many items in stock. After the inventory is catalogued, items can be placed in a cycle for inventory.

The cycle count could be daily for some items and weekly, monthly, or seasonally for other items depending on the business’s needs.

Three types of cycle counting can be used:

1. Control Group: This process is used to test accuracy of the count and is best used when first employing a cycle count and any time new items are introduced into inventory.
2. Random Sample: This method can be used to count the same items frequently (constant population) or to count each item once and then exclude it until all other items are counted (diminished population). This is best utilized for frequently ordered items, seasonal counts, and end-of-year inventories.
3. ABC Cycle: This uses the Pareto principle, or the idea that 20 percent of items and supplies account for 80 percent of sales. This method requires multiple counts but may be useful for parts retailers or supply stores.

Dealing with Loss and Damage

Sometimes the unexpected occurs. Employee theft could be a problem, a shipment could get lost or damaged, or the storage facility or sales area could sustain damage from a power outage or storm. These are all good reasons for implementing an inventory management system as early as possible.

If a business already has a system in place, they can easily track loss and damages and deal with the underlying issues quickly. This also allows them to replace or reorder inventory that was lost and prevent extra financial loss from the situation.

Reordering Inventory

Ideally, a business wants to reorder inventory before it’s needed. With a great inventory management system in place, supported by accurate physical counts, the reorder point, or quantity of an item that triggers a purchase to replenish, should be easy to calculate and reach optimal quantity. If the reorder point is off, some questions to ask are:

• Is the item catalogued properly?
• Was the item stocked in the right area?
• Are the items being rotated properly? (for perishable items)
• Has theft occurred?
• Was a shipment delayed or missed?
• Is there an underlying circumstance, such as seasonal demand or local event?

How to Prepare for a Physical Inventory Count

Preparation is key to a successful inventory count. Here’s how to set the stage for accuracy and efficiency.

Plan in Advance

Schedule your inventory count well ahead of time and notify your team. Choose a date that minimizes disruption to your daily operations.

Organize Inventory Space

Group similar items together and clear any clutter. An organized space makes for a smoother, faster count.

Train Your Team

Make sure everyone knows their roles and understands the counting procedures. A well-trained team is your best asset for an accurate count.

Set Up Tracking Systems

Use barcode scanners or inventory management software to streamline the process. These tools not only speed up the count but also reduce errors.

By taking these steps, you’ll set yourself up for a successful inventory count that benefits your business in the long run.

The Process of Conducting a Physical Inventory Count

You’ve prepped and planned, and now it’s go-time. Conducting a physical inventory count can feel like a marathon, but with the right steps, you’ll cross the finish line with accurate data and a sigh of relief.

Start the Count Systematically

Begin the count by moving through your inventory in a structured manner. Start at one end of your storage area and work your way through methodically. This minimizes the chances of missing items or double-counting.

Document and Record Each Item

Ensure that every item counted is immediately documented and recorded. Use barcode scanners or inventory software to update records in real-time. This reduces errors and saves time compared to manual entry.

Handle Special Considerations

Damaged or obsolete items need special attention. Separate these items and document their condition. This helps in making informed decisions about write-offs or discounts.

Implement Quality Control Measures

Supervisors should monitor the counting process to ensure procedures are followed. Cross-check counts and validate data to catch any discrepancies early. Quality control is your safety net for accuracy.

By following these steps, you’ll conduct a thorough and accurate inventory count, setting the stage for better inventory management.

Post-Count Activities

So, you’ve finished the count. Now what? The post-count activities are just as crucial as the count itself. Here’s what you need to do to wrap things up neatly.

Reconcile Physical Count with Records

Compare your physical counts with your inventory records. Identify and investigate discrepancies. Make necessary adjustments to ensure your records reflect the actual stock.

Report Results

Communicate the findings to stakeholders, whether it’s your team or external partners. Create a comprehensive report detailing final counts, discrepancies, and any adjustments made. Transparency is key.

Review and Improve

Analyze the entire counting process. What went well? What could be improved? Use this information to refine your inventory counting procedures for next time. Continuous improvement is the name of the game.

By tackling these post-count activities, you ensure that your inventory data is accurate and actionable, paving the way for better business decisions.

Tips for Successful Inventory Counts

Looking for ways to make your inventory counts smoother and more accurate? Here are some tried-and-true tips that can make a world of difference.

Address Discrepancies Immediately

When you find a mismatch, investigate and resolve it right away. Delaying can lead to bigger issues down the line. Create a stock reconciliation statement to keep track of discrepancies and actions taken.

Choose Attentive Staff

Select team members who are detail-oriented and reliable. Well-trained staff are crucial for a successful count. If you’re short on manpower, consider using a platform like Homebase to optimize your team’s scheduling and availability.

Utilize Technology

Barcode scanners and inventory management software can significantly improve accuracy. These tools help track items by SKU and provide real-time data, reducing the chances of human error.

Follow Up with Cycle Counts

Regular cycle counts keep your inventory data continuously updated. This method is less disruptive and helps maintain accuracy between full counts. It’s like giving your inventory a mini health check-up.

Consider Third-Party Services

Outsourcing your inventory count to a third-party service can provide higher accuracy and save you time. While it might be an additional cost, the benefits often outweigh the expense.

Implementing these tips can streamline your inventory counting process, making it more efficient and accurate.

What is the Best Method for Your Business?

Choosing the right inventory counting method depends on your specific needs and resources. Here’s how to figure out what’s best for your business.

• Assess Your Needs: Consider the size of your inventory and the complexity of your operations. A small retail store might do fine with manual counts, while a larger business may benefit from electronic or mobile counting.
• Evaluate Resources: Look at your budget and manpower. Can you afford the initial investment in technology? Do you have enough staff to conduct a full inventory count?
• Consider Integration: Ensure that whichever method you choose integrates seamlessly with your existing systems. Platforms like Homebase can help streamline your operations, making inventory counts less of a headache.

By carefully assessing your needs and resources, you can choose the inventory counting method that best suits your business, ensuring accuracy and efficiency.