Inventory count procedure
/How to Count Inventory
In a business that does not have accurate inventory records, it is necessary to periodically conduct a complete count of the inventory (known as a physical count). This is usually done at the end of a month, quarter, or year, to coincide with the end of a reporting period. As the following procedure will show, it takes a great deal of effort to complete an accurate physical inventory count, so companies tend to limit the number of counts completed per year. The steps in the process are noted below. It may be useful to evaluate this procedure after every count, to see if the procedure should be altered to compensate for any counting issues experienced.
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Step 1. Order Count Tags
Order a sufficient number of two-part count tags for the amount of inventory expected to be counted. These tags should be sequentially numbered, so that they can be individually tracked as part of the counting process.
Step 2. Preview Inventory
Review the inventory several days in advance of the scheduled inventory count. If there are missing part numbers, or if items appear to be in a condition that would be difficult to count (such as not being bagged or boxed), notify the warehouse staff to make the necessary corrections.
Step 3. Pre-Count Inventory
Go through the inventory several days in advance and count any items that can be placed in sealed containers. Seal them in the containers and mark the quantity on the sealing tape. This makes the counting task much easier during the actual count. If a seal is broken, then a counting team will know that they need to re-count the contents of a container.
Step 4. Complete Data Entry
If there are any remaining data entry transactions to be completed, do so before the physical inventory count begins. This includes transactions for issuances from the warehouse, returns to the warehouse, and transfers between bin locations within the warehouse.
Step 5. Notify Outside Storage Locations
If the company has any outside storage facilities or third-party locations that hold company inventory on consignment, notify them that they should count their inventory on hand as of the official count date and forward this information to the warehouse manager.
Step 6. Freeze Warehouse Activities
Stop all deliveries from the warehouse, and also segregate all newly-received goods where they will not be counted. Otherwise, the inventory records will be in a state of flux during the inventory count, and so will not be entirely reliable.
Step 7. Instruct Count Teams
Assemble two-person teams to count the inventory, and instruct them in their counting duties. These duties involve having one person count inventory while the other person marks down the information on a count tag. One copy of the tag is affixed to the inventory, while the team retains the other copy.
Step 8. Issue Tags
An inventory clerk issues blocks of count tags to the count teams. Each team is responsible for returning a specific numeric range of count tags, whether or not the tags are used. Maintaining control over all count tags ensures that lost tags will be investigated promptly.
Step 9. Assign Count Areas
Assign a specific range of bins to each count team. Note these locations with a highlighter on a map of the warehouse. The inventory clerk should maintain a master list of which areas of the warehouse have been counted, and which teams have been assigned to each area.
Step 10. Count Inventory
One person on each team counts a specific item within a bin location, and then the other person marks the bin location, item description, part number, quantity, and unit of measure on a count tag. The team affixes the original copy of the tag to the inventory item and retains the copy.
Step 11. Verify Tags
Upon completion of a count area, each count team returns to the inventory clerk, who verifies that all tags were returned. If there are more warehouse areas to be counted, assign a new area to the count teams and issue them new blocks of count tags as necessary.
Step 12. Enter Tag Information
Enter the information on the count tags into an online data entry form. Once data entry is completed, print a report showing all tag numbers entered, sorted by tag number, and look for any gaps in the numbers. Investigate any numbering gaps found. This will ensure that all count tags issued were included in the file.
Step 13. Investigate Unusual Results
Re-sort the inventory report several ways to look for unusual information, and investigate the tag entry associated with each one. It is quite possible that doing so will uncover errors that can be corrected.
Physical Inventory Best Practices
There are several best practices associated with a physical inventory count. Consider implementing the following items:
Cycle count in advance. Counting small portions of the inventory on a continual basis prior to a physical count is a great way to improve the inventory record accuracy, and therefore the outcome of the physical count.
Choose an off-peak time. Schedule the physical count for a very slow period, such as an evening, holiday, or weekend. By doing so, the count does not interfere with your regular operations.
Stop all operations during the count. It is nearly impossible to conduct a count when items are being added to and taken from the warehouse bins during the count. Counts should only be conducted in a locked-down environment.
Only use experienced counters. Warehouse staff only, please! Bringing in inexperienced staff will likely result in a more inaccurate count.
Conduct a post mortem. After each physical count has been completed, conduct a post mortem meeting to discuss issues that could be handled better the next time, and include these changes in your formal procedure for the count.
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