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Inaccurate inventory reporting can result in lost sales. These tips will improve the accuracy of your next physical count.

10 Tips to Increase Your Inventory Count Accuracy

Improve Physical Inventory Count
Inflow Inventory ManagementMany would consider a physical inventory count much like a visit to the dentist – Necessary, but sometimes painful. Certainly, inventory management can be challenging, especially for small and mid-size businesses just doing their best with finite resources and budget. However, by maintaining accurate inventory, businesses can eliminate many of the problems associated with inventory management:
  • Declining customer orders because you are unsure whether you have sufficient stock to fill the order.
  • Inefficient use of warehouse staff, as they are looking for misplaced inventory
  • Maintaining excess inventory as a precaution against inaccurate counts
  • Expediting orders because you find out that you don’t actually have physical inventory, even if your transaction system says you have quantity on hand
Below are ten tips that will make physical inventory counting much smoother, so you can quickly get back to helping your company make money.

1. All Functions Should Prioritize Inventory Management

First and most important, your organization should make inventory management an organizational priority. The most common inventory management issues originate from woefully inaccurate sales forecasts from prior periods. If the supply chain doesn’t receive an accurate demand forecast, they won’t build the right product. Over time, this creates excessive amounts of unneeded inventory, making it especially hard to manage physical counts. 

To solve this, establish the cultural mindset that all functions should collaborate to ensure they are aligned on the demand forecast provided to supply chain. The sales team should be incentivized to generate accurate sales forecasts, and other functions should be engaged to ensure they understand and agree to the demand forecast given to supply chain. Ideally, the organization establishes a monthly meeting cadence in which the sales leaders, marketing team, and business leaders meet and agree on the demand forecast. 

In short, the most effective way to increase the accuracy of physical counts is to prevent the unnecessary buildup of excess inventory in the first place. If you wait to solve your inventory issues at the time of the physical count, you are simply addressing the symptoms of poor inventory management. 

2. Everything in its Place

When the time comes to count inventory, having everything in a marked location is a necessity. Those loose boxes and stray pallets without a home are often the problems that come back to haunt you while you try to reconcile. Even if you must make new, temporary locations for the duration of the count, put everything in a well-marked and defined place, and leave it there.

3. Reduce Inventory Beforehand

Inventory management ahead of physical countMy first job was that of a stocker in a grocery store. We would literally let much of our inventory sell out the days prior to the inventory count. At the time of the did a physical count, we simply had less inventory to manage.  Whether it’s holding up an inbound shipment a couple days, or shipping extra in the days prior to the count, counting less means fewer chances for mistakes. You’ll also want to be sure to not receive or ship any product during the count, since this can easily cause discrepancies.

4. Count Overstock Locations In Advance

By counting the overstock facilities ahead of time, you can reduce the actual effort needed during the period when inventory is frozen.  By fully stocking the picking locations first, then wrapping and marking the count of overstock location can drastically reduce the stress on count day. However, if inventory is removed from the overstock location subsequent to the count, be sure the count tag is either removed or adjusted to reflect the appropriate quantity.

5. Employ Obvious Visual Cues

Signage helps with inventory managementWith so many people counting, keeping track of what has and has not been counted can often be difficult. To avoid confusion, be extra generous with visual labels and controls. Large count tags, bright colors, and unmistakably clear signs can save you hours of confusion later on. Especially if you are bringing in employees or temps unfamiliar with your product, erring on the side of too big and obvious can be well worth the expense. If something is not in inventory, mark it so even those with the poorest of eyesight can easily understand to not count the product.

6. Perform Counts on a Regular Basis

Schedule inventory counts on a regular basisAs your to-do list grows, taking time to cycle count is likely to slip to the very bottom of your priorities. However, installing incentives and consequences to ensure regular cycle counts happen will not only reduce the pain of a complete physical count, but also give you more confidence in your system’s numbers throughout the year. 

Whether you schedule your cycle counts based on activity-based drivers, items likely to have problems, or some other method suited to your business, rotating through items helps catch inventory issues before they become larger problems.

7. Audit Counts in Real Time

Auditing counts are essential to ensure each team is counting the products correctly. However, if you wait until all the counting is done, you can’t do much but go back and recount whatever that team counted. Instead, auditing counts from each team soon after they start gives you an opportunity to correct any problems and provide reactive training to avoid future miscounts.

8. Include People Familiar With the Products

Mistakes arise when staff are not familiar with the quantity of product in each packed case.  Is an assortment of 24 items in inventory counted as one pack or 24 separate items? While box markings can help, nothing replaces an experienced team member. If you bring in additional people to help count, be sure to include someone who knows the products well on each team. Partnerships with one experienced person and one new work well.

9. Estimate Immaterial Quantities

Many small items simply aren’t worth the effort to count individually. Whether its tiny plastic bags, plastic hooks, tons of grain, or gallons of chemicals, physically counting out the amount is often not worth the value of the product. For large quantities of small items, you can employ a scale to estimate the value. 

For an inexpensive component, you can weigh a sample item and then calculate piece count from the total weight. For large quantities that are difficult to weigh, calculating volume by lead lines and extrapolating is preferable to simply guessing.

10. Document Lessons Learned

Document lessons learned from your physical countFinally, after you’ve recorded your last counts and everything is reconciled in your system, take a few minutes to reflect. Gather the team together and review what problems you encountered. What went well? What caused problems? Most importantly, what can you put in place to avoid these same problems in the future? Each small change you put in place today can save your team headaches in the future.

About the Author

Bryce Bowman

Bryce Bowman

Bryce has over two decades of leadership roles in finance and supply chain. In his supply chain roles, he built reporting for multi-billion dollar supply chains. As Division CFO, Bryce established reporting and controls for a multinational industrial business. Bryce now helps companies solve inventory issues through better planning.

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