Inventory accuracy is key to any business, but especially those that don’t have accurate records. Periodically conducting a physical count of the inventory helps to ensure that the inventory levels are accurate.

This is usually done at the end of the month, or at the end of a fiscal period, to coincide with the end of a reporting cycle.

The following procedure explains how a company conducts a physical inventory count. The company typically limits the number of physical inventory counts per year to save on the amount of effort required to complete an accurate count.

It may be helpful to evaluate your inventory-counting procedure after every count, to see if the procedure should be altered to compensate for any counting issues experienced.

Step 1 – Order Count Tags

It is important to order a sufficient number of two-part count tags before inventory counting begins. This will ensure that each item can be properly tracked and accounted for. The tags should be sequentially numbered to maintain organization.

Step 2. Preview Inventory

Review the inventory a few days before the scheduled inventory count.

If you come across any missing part numbers, or items that appear to be in a condition that would make them difficult to count, please let the warehouse staff know so they can make the necessary corrections.

Step 3. Pre-Count Inventory

Pre-count your inventory several days in advance. This will help you determine how much of each item you need to seal in containers. Be sure to mark the quantity on the sealing tape so you know how much is in each container.

This will make the counting process much easier and more accurate. If a seal is broken, the counting team will be able to tell and will then need to recount the contents of that container.

Step 4. Complete Data Entry

If there are any remaining data entry transactions to be completed, please do so before the physical inventory count begins.

This covers any transaction that deals with issuing, returning, or transferring stock from the inventory.

Step 5. Notify Outside Storage Locations

All outside storage facilities and third-party locations that hold company inventory on consignment must count their inventory on hand as of the official count date and forward this information to the warehouse manager.

Step 6. Freeze Warehouse Activities

It is essential that all deliveries from the warehouse are stopped and that newly received goods are segregated and not counted in order to avoid any inaccuracies in the inventory count.

Step 7. Instruct Count Teams

One copy of the tag is affixed to the inventory, while the team retains the other copy. Output: Assemble two-person teams and provide instructions on counting duties. Duties include having one person count inventory while the other person marks down information on a count tag. One copy of the tag should be affixed to inventory, and the team should retain the other copy.

The team must count the inventory and mark 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

The 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.

If a tag is lost, the system will investigate it promptly to make sure it is not lost.

Step 9. Assign Count Areas

Assign each count team a specific range of bins to count. Note these locations with a highlighter on a map of the warehouse so everyone is on the same page.

The inventory management team should maintain a list of which areas have been fully inventoried, and which teams have each been assigned.

10 Steps to Count Inventory

One person on each team should count a specific item within a bin location, and then the other person should mark the bin location, item description, part number, quantity, and unit of measure on a count tag. This way, you can be sure that every item is accounted for and that your inventory is accurate.

The team affixes the original copy of the tag to the inventory item and retains the copy. This ensures that an accurate count is maintained for that particular item.

Step 11. Verify Tags

After each count area is completed, the count team returns to the inventory clerk. The clerk then checks to make sure 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 with new blocks of count tags as necessary. This will ensure that the entire warehouse is accounted for and that no items are missed.

Step 12. Enter Tag Information

All count tags have been entered into the online form. A report has been generated which shows all tag numbers entered, sorted by tag number. There are no gaps in the numbers.

If you find any numbering gaps in your file, investigate them to make sure that all count tags issued were included.

Step 13. Investigate Unusual Results

Re-sort your inventory report in several ways to look for unusual information, and investigate the tag entry associated with each one. This will help you to identify any potential errors so that you can correct them.

The Four Types of Physical Inventory Counts

There are four types of inventory counting procedures: manual, electronic, cycle counting, and full inventory counting. The methods vary, but the important thing is to choose the right technique to get accurate data for your company.

Physical Inventory vs. Cycle Counting

A physical inventory is a periodic count of all the items in a company’s stock. Cycle counting is a more frequent and systematic count of specific items in the stock.

Companies should conduct cycle counting at least quarterly, and daily if possible. This systematic method of counting stock is more accurate than physical inventory and helps to prevent stock-outs.

Physical inventory is not always automated. Cycle counting is typically automated, however.

Automating your inventory processes saves a lot of time, reduces most errors, and enables you to have real-time, useful data about your products.

A most accurate inventory count is achieved via a combination of cycle counting and automation.

Annual Physical Inventory Count

Companies often conduct an annual count of their stock before preparing their annual reports. However, this annual counting method is not always accurate.

It depends on your business and goals.

Annually, businesses do a physical inventory of their stock. Retailers, manufacturers and wholesalers do this, as well as e-commerce based companies that do full or partial counts.

Inventory cycle counting is a process where staff counts sections of stock on a rotating or systematic basis. This practice helps to ensure that inventory levels are accurate and up-to-date. Read our guide to learn more about how cycle counting can benefit your business.

You should still perform physical inventory counts even if you have an automated system in place to manage your inventory. A computerized system is not a replacement for a physical inventory count.

Even businesses with small amounts of stock may want to perform annual physical inventories to ensure everything is accounted for.

Large distributors find it disruptive to freeze some of their stock in order to count inventory.

Many companies choose to implement a perpetual inventory system in order to reconcile their stock numbers with their auditors, rather than conducting a full annual count. This method is often less disruptive and more efficient for businesses with large amounts of stock.

Tips Fast And Easy Physical Stock Counts

Here are a few ways you can improve your counts!

Here are a few tips you can use the next time you take a count! Try dividing the stock into sections and taking the count one by one instead of all at once. This will be more manageable, especially if you have to attend to customers during store hours. Use people who are sharp and alert and familiar with your day-to-day business. They should also be aware of the location of different items to take the count accurately. Schedule it after work hours or keep the shop closed for a part of the day. Inform your customers in advance so they are not inconvenienced. Draw up a map of your store or your stock room – this makes it easier to assign sections to your employees, and also mark off the sections once they have been checked, to prevent double entries. Labelling all the boxes and shelves just makes it easier to make sure that everything is where it should be! This will save time in the long run. Deal with outstanding orders from suppliers, products returned by customers, or damaged items as soon as possible so that your inventory count is accurate. If you have a POS system, check if it is equipped with inventory counting features. You could also use mobile apps meant specifically for scanning the stock.

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What’s An Average Inventory Counting Speed?

Assuming three cycle counters, an average of 2,160 bins per month can be counted.

Ware showed how drones could be used to count inventory in a short amount of time.

This is a significant increase in the cycle counting capacity, which can be attributed to the use of drones. With just 1 human and 2 drones, the task was completed quickly and efficiently.

The autonomous inventory counting method used by Ware saves the company an estimated $35,000 per year. In addition to the significant cost savings, this method also increases inventory counting capability by 15 times and provides images of every single piece of inventory in the facility.

What Is the Best Way to Count Inventory?

The best way to keep track of your inventory is by using inventory management software. This software will help keep your inventory audits short and sweet. It is much faster than physically counting items and maintaining spreadsheets. Plus, it is more accurate.

You’ll save time and be more accurate using inventory management software that uses barcodes and QR codes to automate the inventory counting process.

How do you keep track of what’s on your shelves? Even if it’s tedious, counting inventory is a must.

If inventory is not counted on a regular basis, businesses run the risk of overstocking or understocking items. This can lead to inaccurate record keeping of profits and losses, and ultimately result in costly mistakes.

What’s the best way to count inventory? It’s important to have an accurate inventory count in order to make sound business decisions. An inventory counting app can help make your inventory counts faster and more accurate.