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Physical Inventory Count: A Deep Dive into Managing Assets

vijay

Vijay Kumar

Senior Specialist - Marketing @ Shiprocket

March 4, 2024

7 min read

Physical inventory refers to all the goods you have in stock in your shop, warehouses, or any other place you store them. It is important to keep the physical inventory organised and maintained to ensure a smooth dispatch. It has been observed that those who invest time and effort in managing their physical inventory efficiently stay in better control of their business. Research reveals that overstocking as well as understocking can lead to financial loss. Conversely, ensuring the availability of the right amount of physical inventory can reduce the inventory cost by 10%. In this article, you will learn about physical inventory, the importance of managing it efficiently, the methods of counting it, and more.

What is Physical Inventory?

Physical inventory refers to the physical goods that are available for sale. Large as well as medium-sized businesses store their physical inventory in large warehouses. Small business owners often have limited stock that can be accommodated in their shops or small warehouses. This holds true for online sellers as well as those who sell retail/ wholesale goods in brick-and-mortar stores. You must keep the inventory organised and monitor it closely to have a clear understanding of what and how much you have in stock. In addition to finished goods, it is important to keep track of the available raw material and the products in making.  Physical inventory count may also include packing materials as well as maintenance, repair, and operations supplies.

The Objectives of Inventory Counting

The objective behind inventory counting is to have a clear understanding of the amount of inventory available under each category. Business owners who keep track of the inventory count can improve order management and thus enhance customer experience.

In a survey, 34% of business owners stated that they shipped an order late because they unintentionally sold products that were not available in their stock. This is because of a lack of inventory count. This can result in a bad reputation for the business. To avoid such discrepancies, you must count the physical inventory and compare it with the numbers recorded in the POS system. The two must match to ensure efficiency.

When to Initiate an Inventory Count?

Physical inventory count must be done regularly, however, doing so becomes critical at certain points. One of the stages when you must initiate inventory count is while replenishing the stock. You must take a head count of the new as well as existing items at this time. Each time you restock the items in your shop/ warehouse, you must update the accurate numbers in your system. It is also important to update the system with the number of items sold every day. You may compare it with the physical inventory in your warehouse on a weekly or fortnightly basis. This will help assess the need for restocking.

If you do not use an inventory management system and control everything manually, then inventory counting must be done more frequently. The frequency of this activity, however, should also depend on the number of items you have and your sales. Many small business owners do not count or monitor their inventory regularly.

Inventory Count Methods

Different methods are used to count inventory. Let us take a look at each of these:

1. Manual Counting

The workers at the store/ warehouse count each item manually and pen down the number. While this is a low-cost technique, it can be quite time-consuming. Moreover, there are chances of human errors.

2. Electronic Counting

This is when the staff makes use of the POS system and bar code scanner to count physical inventory. This enables counting the items quickly, conveniently as well as accurately. The count of items is recorded electronically in the system using this technique. So, by the time the counting is done, a digital record of the same is ready for reference. However, the staff needs to be trained to use the technology employed in the process.

Physical and Perpetual Inventory Counts: Key Differences

Physical inventory count calls for taking a manual count of the inventory. The inventory management system is adjusted to match the count in case of any discrepancies.

Perpetual inventory count happens when the stock level changes after your sales system records a transaction. The inventory level is adjusted automatically in this case.

The Benefits of Effective Inventory Counts

Here are the key benefits of ensuring effective inventory counts:

1. Tracking Inventory

Inventory count gives a clear picture of the number of items available for sale under each category. This prevents over-stocking and the issues caused due to it. The scope of running out of stock also reduces.

2. Reduces the Chances of Theft

When you have an accurate count of the physical inventory, you will know if anything goes missing.

3. Better Asset Management

It helps you know when a product was acquired, how long it stayed in stock, and how much profit you derived from it. This facilitates better asset management.

4. Lower the Operational Cost

When you have accurate knowledge about the inventory count, you can save storage as well as operational costs.

5. Enhances Customer Satisfaction

Maintaining stock records helps avoid delays in shipment as you will only sell the items that are with you.

The Inventory Counting Process

Here is how you should manage inventory counting to complete the process systematically:

1. Begin by determining a date on which you will count your inventory each month. Likewise, you may decide on dates for weekly or quarterly counts depending on the frequency you want to maintain. Try to schedule the activity after your work hours.

2.    Notify about the same to your warehouse as well as retail staff.

3.    Divide the responsibility among your workers. An efficient way of doing so is by preparing a list of SKUs category-wise and dividing the same among them.

4.    The staff can note the inventory count on paper or a spreadsheet. The same can even be recorded with a barcode scanner and POS.

5. Thereafter, see if there is any discrepancy between the actual count and the count in the POS system. You may consider recounting in such a case.

Strategies for Success: Practical Guidelines for Inventory Counts

·   Make use of the latest inventory management technology

·       Label all the boxes in your warehouse

·       Place all the boxes category-wise for easy access

·       Schedule inventory counting at a time convenient for you and your staff members

·       Train your staff members to carry out the activity efficiently

·   Make sure you carry out the inventory count regularly

Conclusion

Physical inventory must be stored systematically and restocked regularly. It is equally important to maintain a record of the count of your inventory. This can be done using manual or electronic counting methods. More and more businesses these days are choosing the electronic counting method to ensure accuracy and speed up the process. It is suggested to make use of the latest inventory management technology to manage this task efficiently. The frequency of counting may be decided depending on the amount of inventory and restocking needs.

1. What is the cycle counting method?

In cycle counting, the retailers count inventory only for a particular category rather than indulging in a complete stock check. This can be done from time to time for different categories. The task can be accomplished within a few hours.

2. Is it a good idea to use a barcode scanner for physical inventory counting?

The use of a barcode scanner is highly recommended for physical inventory counting. It prevents the chances of miscount ensuring accuracy. It also enables automatic recording of the SKUs in the POS system.

3. What to do if there is a discrepancy in the physical inventory count?

It is important to find out the root cause of the discrepancy to begin with. Thereafter, you must rectify the error and update the records to ensure accuracy.

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