{"id":14836,"date":"2022-12-11T10:22:31","date_gmt":"2022-12-11T18:22:31","guid":{"rendered":"https:\/\/michaeljbrumm.com\/dcl-v3\/?p=14836"},"modified":"2023-11-08T09:05:30","modified_gmt":"2023-11-08T17:05:30","slug":"physical-inventory-count","status":"publish","type":"post","link":"https:\/\/michaeljbrumm.com\/dcl-v3\/blog\/inventory\/physical-inventory-count\/","title":{"rendered":"What is a Physical Inventory Count and Why is it Important?"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">\u200bPhysical inventory counts are a vital part of any successful ecommerce business, as they provide you with an accurate account of what is actually in stock. All too often, businesses rely on their inventory systems to give them an accurate count of what they have in stock, but this isn\u2019t always the case. Physical counts are a way to verify that the inventory system and the actual stock are in agreement.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Physical inventory counts involve physically counting the number of items in stock, and comparing that number with the number that is in the inventory system. This process can be a time consuming task, depending on the size of the business and the amount of items in stock. Many businesses choose to hire outside employees to help with the physical counting process, as it can be difficult for employees to count an entire inventory accurately.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">The benefits of physical inventory counts are numerous. They provide businesses with an accurate count of what is actually in stock, which helps to ensure that there are no discrepancies between the inventory system and the actual stock. This can help to reduce the amount of out of stock items that customers experience, as well as reduce the amount of lost profits due to incorrect stock levels.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">In addition to providing accurate stock levels, physical counts can help to identify any discrepancies between the inventory system and actual stock. If a business discovers that there are more items in stock than what the inventory system is showing, they can take steps to correct the issue. This can help to reduce the amount of stock that is wasted or unaccounted for.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Physical inventory counts can be done by implementing systems and processes that track inventory levels in real time and use automation to manage the flow of inventory throughout the supply chain, from warehouse receiving to returns management.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Purpose of a Physical Inventory Count<\/span><\/p>\n<p><span style=\"font-weight: 400;\">A physical inventory can ensure an accurate inventory tally. Staff physically count each piece of stock. This physical inspection of goods should confirm what\u2019s in the inventory management system report. Any discrepancy should alert you there\u2019s another issue.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Businesses perform physical inventories for other reasons, such as when preparing a balance sheet for tax season. Additional objectives of an inventory count include:<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Check and Balance Inventory Levels:<\/b><span style=\"font-weight: 400;\"> Physical inventories can help managers see any discrepancies between their inventory management system reports and what items are in their storage.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Manage or Monitor Theft:<\/b><span style=\"font-weight: 400;\"> The difference between what appears in the inventory management system, and what is present can be due to missing, stolen, lost or broken items. Unless staff manually enter when these scenarios occur, the system would not recognize them.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Create an Accurate Budget:<\/b><span style=\"font-weight: 400;\"> Companies with precise inventory counts can better plan their budget for the next year\u2019s inventory orders.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Report Accurate Earnings:<\/b><span style=\"font-weight: 400;\"> An inaccurate inventory means a company will report an incorrect amount for the cost of goods sold, the gross profit and net income. Public companies are primarily accountable to their stakeholders to provide correct figures in their annual reporting.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">How Do You Perform an inventory count?<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">The inventory count is one of the most important steps in a business. It is a process that&#8217;s crucial to making sure your company can supply its customers with what they need and when they need it. It involves inspecting each item for quality and quantity, ensuring you have what you need on hand. So, how can one carry this process?<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Here are a few steps that you must follow to count inventory-<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Order Count Tags<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Order enough two-part count tags to cover the amount of inventory that will be counted. These tags should be numbered sequentially so that they may be tracked individually during the counting process.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Review Inventory<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The warehouse workers should be notified if part numbers are missing or items look to be in a condition that would make counting difficult. This will allow them to make any necessary changes for the upcoming inventory count.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Pre-Count Inventory<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Pre-count any products that can be stored in sealed containers. Seal them in the containers and label them with the quantity. This simplifies the counting process during the actual count. If a seal is broken, a counting team will know that the contents of a container must be counted again.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Complete Data Entry<\/span><\/p>\n<p><span style=\"font-weight: 400;\">If any data entry transactions need to be performed before the physical inventory count, do so now. This comprises issuances from the warehouse, returns to the warehouse, and transfers within the warehouse between bin locations.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Notify Outside Storage Locations<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Notify any outside storage facilities or third-party sites where company merchandise is held on consignment that they must count their inventory on hand as of the official count date and forward this information to the warehouse manager.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Freeze Warehouse Activities<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Stop all deliveries from the warehouse and put any freshly obtained goods in a separate area where they won&#8217;t be counted. Otherwise, during the inventory count, the inventory records will be in a state of flux and hence will not be completely reliable.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Instruct Count Teams<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Assemble two-person teams to count the inventory and train them on how to do so. These responsibilities entail having one person count inventory while the other records the data on a count tag. One copy of the tag is attached to the inventory, and the other copy is kept by the team.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Issue Tags<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The count teams are given blocks of count tags by an inventory clerk. Whether or not the tags are used, each team is accountable for returning a certain numeric range of count tags. Maintaining control over all count tags means that any missing tags are quickly investigated.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Assign Count Areas<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Each count team should be given a defined range of bins to work with. Make a note of these locations on a warehouse map with a highlighter. The inventory clerk should keep track of which parts of the warehouse have been counted and whose teams have been assigned to each area on a master list.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Count Inventory<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Each team must have one person counting a specific item within a bin location, and the other team member recording the bin location, item description, part number, quantity, and unit of measure on a count tag. The team must then keep the original copy of the tag and attach it to the inventory item.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Verify Tags<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Ensure that all tags have been returned on completion of the inventory count. Assign a new area to the count teams and issue them fresh blocks of count tags as needed if there are more warehouse locations to be counted.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Enter Tag Information<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Fill out an online data entry form with the information from the count tags. Print a report showing all tag numbers input, ordered by tag number, and look at number discrepancies, if any. This will verify that the file contains all of the count tags that were issued.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Investigate Unusual Results<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Re-sort the inventory report in a few different ways to locate unusual data, and check the tag entry connected with each inventory.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Use Inventory Software<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Completing an accurate physical inventory count takes a substantial amount of time and effort. This is one of the reasons why organizations limit the number of counts they perform each year. However, inventory management software, such as <\/span><a href=\"https:\/\/michaeljbrumm.com\/dcl-v3\/why-dcl\/efactory-platform\/\"><span style=\"font-weight: 400;\">DCL\u2019s eFactory<\/span><\/a><span style=\"font-weight: 400;\">, can assist you in expediting this process while maintaining accuracy. Inventory software can assist you in reducing workload and saving time.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Additional Ways to Improve Physical Inventory Counting<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Here are several best practices for taking physical inventory that we have found effective in inventory count processes:<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Establish a Comprehensive Inventory Department.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Small to moderate sized distribution centers may not have this function. Responsibilities include: cycle counting, correcting warehouse back orders as they occur, implementing continuous improvement, bin managements, etc.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The inventory department should be charged with identifying and implementing ways to keep the inventory accuracy high and to eliminate the manual paperwork; correcting warehouse back orders, reconciling systems and physical causes of inventory shrinkage.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Implement Inventory Cycle Counting.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">If you don\u2019t already use cycle counting, make it a priority to understand what capabilities your warehouse management system has and set it as a process improvement objective. There are different types of inventory counts, including cycle counts for locations that hit zero to ensure accuracy, or counts when the wrong item is discovered.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Secure High Value or High Shrink Inventory Items.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">It may be best to identify high value or high shrink products that \u201cmay have legs.\u201d Set up caged or locked areas with restricted access. Some high value categories may require a physical inventory daily because of value (e.g. fine jewelry).<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Use Barcode Reading Technology.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Many businesses still use manual count sheets to manually record the count. Save time and reduce human error by implementing barcode scanning for inventory counts. Software is also available that can turn smartphones and tablets into scanning devices for physical inventory counting.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Consider Using a Third Party.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Most companies take their own inventory with warehouse staff. Admittedly, this may not be the most accurate way. Some people just aren\u2019t organized and reliable inventory takers. They need to be paired with someone who is. However, large scale inventories taken by services are expensive. They also use a SWAT kind of mentality to get in and out as quickly as possible.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Inventory system audit trail.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Newer WMS and ERP systems generally offer inventory tracking in two ways:<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">By bin\/slot location and what SKUs have moved in and out over time<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">By SKUs and all the bin\/slot locations it has moved in and out.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">This occurs in real time and is archived as long as needed.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">The tracking is by transaction type: sales, receipts, returns, inventory adjustments, etc.\u00a0 It also identifies the associate who processed the transaction with the transaction number, date and time stamp. Older systems may not have this capability.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">What are the Different Types of Inventory Counts?<\/span><\/p>\n<p><span style=\"font-weight: 400;\">There are four types of inventory counting: full counting, cycle counting, tag counting, and ad hoc counting.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Full counts are a total review of all products in a warehouse or store. This includes goods on warehouse shelves, product shelves, products currently being stocked, and everything in between.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Cycle counting is counting all the products in a designated area of the store, or a particular type of product. You then move from one zone to the next until the entire store is counted within a time period. Cycle counts are most effective in high traffic industries, like grocery and retail.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Tag counting is the same as an inventory cycle count or full count, simply with tags assigned to products. Counters add product info to each tag, and at the end of the count, staff checks the tag information against system data.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Ad hoc counting is used on the fly for areas of concern, or products that are going to be updated soon. With this method, employees count whichever items they\u2019re assigned and update the inventory data in their warehouse management system.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Bottom Line<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Overall, physical inventory counts are a great way for businesses to ensure that their inventory system and actual stock are in agreement. It can help to reduce the amount of lost profits, theft, and out of stock items that customers experience. It can also help to identify any items that need to be replenished or replaced. Physical inventory counts can help to ensure that businesses always have an accurate account of what is in stock, which can help to improve customer satisfaction.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>\u200bPhysical inventory counts are a vital part of any successful ecommerce business, as they provide you with an accurate account of what is actually in stock. All too often, businesses rely on their inventory systems to give them an accurate count of what they have in stock, but this isn\u2019t always the case. Physical counts [&hellip;]<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"content-type":"","footnotes":""},"categories":[107],"tags":[46],"class_list":["post-14836","post","type-post","status-publish","format-standard","hentry","category-inventory","tag-warehouse-management"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v22.5 (Yoast SEO v26.9) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>What is a Physical Inventory Count and Why is it Important? | DCL Logistics<\/title>\n<meta name=\"description\" content=\"Physical inventory counts are a vital part of any successful ecommerce business, as they provide you with an accurate account of what is actually in stock.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/michaeljbrumm.com\/dcl-v3\/blog\/inventory\/physical-inventory-count\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"What is a Physical Inventory Count and Why is it Important?\" \/>\n<meta property=\"og:description\" content=\"Physical inventory counts are a vital part of any successful ecommerce business, as they provide you with an accurate account of what is actually in stock.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/michaeljbrumm.com\/dcl-v3\/blog\/inventory\/physical-inventory-count\/\" \/>\n<meta property=\"og:site_name\" content=\"DCL Logistics\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/DCLLogistics\/\" \/>\n<meta property=\"article:published_time\" content=\"2022-12-11T18:22:31+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2023-11-08T17:05:30+00:00\" \/>\n<meta name=\"author\" content=\"Hadleigh Reid\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@dcl_logistics\" \/>\n<meta name=\"twitter:site\" content=\"@dcl_logistics\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Hadleigh Reid\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"9 minutes\" \/>\n<!-- \/ Yoast SEO Premium plugin. -->","yoast_head_json":{"title":"What is a Physical Inventory Count and Why is it Important? 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