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How do I do a Physical Inventory

How do I do a Physical Inventory?



The Key to Success is Preparation!



The first step is to determine a date to conduct the physical inventory.  Try to avoid scheduling a physical inventory around holidays or times of the year when many people are taking vacations.  This will ensure a high level of participation in the counting activity.   Notify all personnel of the scheduled count date as early as possible, generally 8-10 weeks in advance is preferable. 


It is very important to explain the necessity of conducting an accurate inventory count.

As discussed in the “Why do a physical inventory” section, the count is needed for proper valuation of inventory on-hand as defined by the Internal Revenue Service.  However, employees will generally be able to relate more easily to some of the other reasons why an accurate physical inventory count is important.  An accurate physical inventory counts will contribute to improved customer service.  When customer service personnel and salespeople are confident that the stock quantities are accurate they are better able to serve the customer.  However, if quantities are unknown, they will put potential customers on hold to go out to the warehouse and confirm that products really exist before attempting to sell them.  This is annoying to customers and does not convey that you are using state of the art methods to ensure your stock levels are accurate at all times.  Another benefit is found in the purchasing department.  With accurate inventory information, they are better equipped to make economic ordering decisions.  Thereby, potentially reducing the unit cost of items in stock.  In addition, purchasing will also be able to employ effective replenishment techniques to minimize stock-out situations. 


All storage areas should be clean and organized in preparation for the count in order to make it easier to move around and gain access to all items to be counted.  Make sure all location labels are in tact and can be scanned.  This can be done by using a verifier or hand held, to make sure labels can be read prior to the count day.  Any defective labels should be re-created and replaced.  Visually inspect items that will be counted to ensure they have labels.  Replace or add labels to all packages where labels are missing or damaged.


Divide your facility into count areas and assign specific areas of responsibility to counters.  Make senior level experienced personnel available on count day to assist with answering questions as the count is conducted.  This will minimize the number of errors, mis-identification of products, and re-counts that will be necessary.



Inspect all hand held devices to make sure that they are functioning properly and make arrangements for any necessary repairs.  Check that all batteries are in good working condition and order replacements if needed.  Purchase all necessary supplies that will be required to support count personnel.  If you have a radio frequency system, make sure that all radios are in good working order and are providing adequate coverage for all areas that are to be counted.


During the week prior to the actual count, arrange for a review of the procedures and provide training to all counters on equipment operations.  Define how all materials are to be counted, particularly if you need to weigh count, measure, or you have mix counts such as carton, each, or pallet quantities of like items.  Any rules regarding the type of unit of measure that counters need to know should be defined; such as pounds, ounces, tons, gallons, each, thousands, foot, inch, etc…  If any of the items have a shelf life and are discovered to be expired during the count, what counters should do with these items.  Are they considered scrap or good quantity, and should they be isolated for disposition following the count? 


 On count day, production and warehouse activity is typically suspended.  The counters then take the hand helds and count all items located in the section of the facility designated for them to count.  Generally, counters will then place a colored sticker on the location counted to avoid others from counting the same location.  If they are using batch hand held devices they will take the unit periodically to be uploaded to a PC computer.  Once the count information is uploaded to the PC, the counter can return to counting more areas.  If they are using radio frequency devices the count information is updated to the PC the moment the item is counted.  Collected count information is always available on the Physical Inventory PC and may be subsequently connected to the host system depending on how the system was configured.  When all locations have been inventoried, supervisors can identify any discrepancies by printing reports directly from the PC.  Alternatively, variance reports can be run from the host system.  Locations that require recount can easily be identified and counted again as needed.  Recounts can continue until management is satisfied the count is accurate.  Once management approves the count, production and warehouse activities resume.       

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