What is Taking Inventory?

Taking inventory is the process of counting the amount of inventory owned by a business. Taking inventory is needed to ensure that a firm’s inventory records match the physical count, to support materials management and to ensure that a correct ending inventory balance is reported on its balance sheet. Taking inventory can require that a company cease its normal warehousing and production activities in order to ensure an accurate count, so the count is commonly conducted after hours or on a weekend. This is an especially important activity when a business has a large investment in inventory, such as a retailer, distributor, or manufacturer.

Disadvantages of Taking Inventory

It is not always a good idea to take inventory. If an inventory count is conducted using inexperienced people from outside the warehouse, it is quite possible that the resulting inventory records will be less accurate than had been the case before the count. Another concern is that all warehouse activities need to stop during the inventory-taking process, which can interfere with ongoing sales activity. Consequently, it is important to only take inventory when it is absolutely necessary to do so, and only using experienced warehouse personnel who know how to count inventory.

How to Avoid Taking Inventory

Taking inventory is a time-consuming and somewhat expensive process. Here are several options to consider for how you can avoid taking inventory:

Implement a cycle counting system. Under this approach, a small portion of the inventory is counted by the warehouse staff, with any errors found being researched and corrected on the spot. Doing so ensures that the inventory record accuracy level remains high, and that any underlying recordkeeping problems are promptly identified and fixed.
Use drop shipping. Under a drop shipping arrangement, another party produces and stores inventory, and ships it directly to your customers. This means that there is no inventory to count.
Use just-in-time production. Under a just-in-time setup, goods are only produced to order, which means that there is very little inventory on hand to count.