A physical count is a process of physically verifying the quantity of items in your inventory by physically counting each item. This is typically done by selecting a representative sample of items and counting them, then using statistical techniques to estimate the total number of items in the entire inventory.
There are several steps involved in conducting a physical count:
- Prepare for the count: This includes selecting the items to be counted, assigning counting tasks to individuals or teams, and making sure that all necessary tools (e.g. scanners, counting sheets) are available.
- Conduct the count: This involves physically counting the selected items and recording the quantities.
- Compare the count to the records: The quantities counted should be compared to the inventory records to identify any discrepancies.
- Investigate and correct discrepancies: If discrepancies are identified, they should be investigated to determine the cause and corrected as necessary.
- Update the records: Once the count is complete and discrepancies have been resolved, the inventory records should be updated to reflect the accurate quantities.
Physical inventory counts should be conducted on a regular basis, such as annually or quarterly, to ensure the accuracy of the inventory records and to identify and address any issues that may arise.
Why is physical inventory count important?
There are several reasons why it is important to conduct a physical count of inventory from time to time:
- To ensure that the inventory records are accurate: A physical count allows you to verify that the inventory records are accurate by comparing the quantity of items on hand with the records. If there is a discrepancy, you can identify and correct the error.
- To identify shrinkage: Shrinkage is the loss of inventory that is not accounted for through normal sales or usage. A physical count can help you identify shrinkage due to theft, damage, or other causes.
- To improve efficiency: Accurate inventory records can help you make better decisions about when to restock, how much to order, and how to allocate your resources. A physical count can help you maintain accurate records and improve efficiency.
- To satisfy regulatory requirements: Some industries, such as healthcare and food service, are required to conduct physical counts of inventory on a regular basis to comply with regulatory requirements.
- To prepare for financial audits: Physical counts can be used to support the accuracy of your inventory values for financial reporting purposes. This can be especially important if your business is subject to an audit.
- To prevent overstocking: Overstocking can lead to excess inventory that takes up space, ties up capital, and goes out of date. A physical count can help you identify items that are not moving as quickly as expected and adjust your ordering accordingly.
- To optimize pricing: Accurate inventory records can help you understand the true cost of carrying each item and set prices accordingly. A physical count can help you maintain accurate records and optimize pricing.
- To identify obsolete or slow-moving items: A physical count can help you identify items that are no longer in demand or moving slowly, so you can consider discontinuing or discounting them.
- To improve customer satisfaction: Accurate inventory records can help you avoid running out of stock or overpromising on delivery times, which can lead to disappointed customers. A physical count can help you maintain accurate records and improve customer satisfaction.
- To identify opportunities for cost savings: A physical count can help you identify opportunities to streamline processes, reduce waste, and lower costs. For example, you may discover that you have multiple suppliers for the same item, or that you are carrying excess safety stock. By identifying these opportunities and making changes, you can reduce costs and improve profitability.
- To reduce the risk of stockouts: Accurate inventory records can help you avoid running out of stock, which can lead to lost sales and disappointed customers. A physical count can help you maintain accurate records and reduce the risk of stockouts.
- To improve inventory turnover: Accurate inventory records can help you optimize your inventory levels and improve turnover, which is the number of times that inventory is sold and replaced over a given period. A physical count can help you maintain accurate records and improve inventory turnover.
- To improve cash flow: Accurate inventory records can help you manage your cash flow more effectively by reducing the need for excess safety stock and avoiding overstocking. A physical count can help you maintain accurate records and improve cash flow.
- To reduce carrying costs: Carrying costs are the expenses associated with holding inventory, such as storage, insurance, and financing. A physical count can help you identify opportunities to reduce carrying costs, such as by identifying slow-moving items that can be discounted or sold off.
- To improve overall business performance: Accurate inventory records and effective inventory management can lead to improved efficiency, lower costs, and better customer satisfaction, which can all contribute to improved business performance. A physical count is an important part of maintaining accurate records and effective inventory management.
