Inventory Count | 9 mins read

How to Perform Inventory Counts - Everything to Know

how to perform inventory counts everything to know
Hanh Truong

By Hanh Truong

Inventory is one of the biggest assets a business has. Therefore, stock management is necessary to protect a brand's bottom line and to ensure inventory is maintained at optimal levels. In order to have an effective stock control system, businesses must regularly perform inventory counts.

Proactively tracking and counting inventory gives managers greater visibility into what they have in their stock rooms and how they can better serve their customer base.

What is an Inventory Count?

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Inventory count is the practice of counting and recording each item a company has in its store or warehouse. This method of tracking stock helps managers monitor their inventory movements and pinpoint any discrepancies in stock levels.

There are two different types of inventory counts that can be performed.

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Full Count

Businesses will most commonly conduct a full inventory count at the end of the financial year so they can have exact metrics to provide to their accountants. For a full count, staff must track every product in the store, as well as the warehouse or storeroom.

It is recommended that managers close the store when conducting a full count as it will ensure that goods are counted only once and that products will not be sold after they are counted. This enables management to have an accurate representation of their stock levels.

Partial Count

Partial counts are when staff members count a small section of inventory during regular store hours. Typically, the sections will be based on specific brands, product categories, or suppliers.

By performing partial counts periodically, businesses will be able to maintain accurate inventory records throughout the year. It also helps managers streamline their full count at the end of the year.

4 Steps of Counting Inventory

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Companies can optimize their inventory counts by following 4 essential steps.

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1. Split Inventory into Groups

Businesses will generally carry large volumes of stock; therefore, separating inventory into smaller groups can prevent employees from becoming overwhelmed. Managers can split inventory based on area, product type, or brand and should have individual staff focus on a specific group.

2. Outline the Warehouse or Stockroom

Management should create a list or outline every area that holds inventory products to ensure that all items are counted. This includes shelves, bins, drawers, receiving areas, and return sections.

3. Have a Pre-Counting Plan

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To make it easier on employees, managers should prioritize counting excess products, slow-moving items, and seasonal goods before doing their full counts. Since these inventory products will most likely not sell before the count, staff can record their quantities prior and save time.

Before performing inventory counts, staff should also take out specific inventory items that will be needed to satisfy existing customer orders. This will guarantee that the final counts are accurate.

Also, employees must be trained on how to conduct proper inventory counts. By following the right counting procedures from the start, the company can save time and prevent any miscounts or errors.

4. Begin Counting

Inventory should now be ready to be counted by employees. Once inventory counts are completed, a manager or supervisor should verify the metrics. Products with high-profit margins should be prioritized and checked thoroughly to ensure the counts are correct.

Businesses can simplify their inventory counting process by using inventory management software. This stock control solution helps business owners simplify their shelf-to-sheet counts with an easy-to-use interface. It also allows users to track their inventory variance, which is the discrepancy of a product's quantity in a company's inventory system with the actual number determined from the count.

Additionally, after counting, managers should review and document their procedures. It is helpful to communicate with staff who performed the inventory count and collect feedback regarding the process.

This gives management insight into what worked and did not work, to which they can make adjustments for future inventory counts. With gradual improvements, companies can develop an effective counting procedure that will run smoothly.

What is Cycle-Counting?

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Businesses that are interested in lessening the work required with counting all inventory at the end of the year can perform cycle counts instead. Cycle counting is the method of counting different areas of the warehouse throughout the year.

One of the greatest benefits of performing a cycle count is that it allows for more accuracy since staff members can focus more of their time and energy on specific areas of inventory, rather than having to work on the entire warehouse in one sitting.

When performing cycle counts, industry experts recommend using the Ranking Method to effectively organize specific inventory products during counts. The method directs managers to prioritize goods that are the most profitable and that contribute the most to cash flow, while slower-moving items can be counted less often.

Using the Ranking Method, inventory can be classified into 4 different levels.

  • Rank A - Items that are responsible for the top 80% of a business's sales. These should be counted 6 times each year.
  • Rank B - Products that are responsible for the next 15% of sales. They should be tracked 3 times throughout the year.
  • Rank C - Items that are responsible for the following 4% of a company's sales. These goods should be counted 2 times per year.
  • Rank D - Goods that are either only responsible for the last 1% of sales or do not have sales at all. They should only be counted 1 time each year.

With the ease of cycle counting, companies can assign one staff with the role of conducting inventory counts throughout the year. This increases the level of control the business will have over its inventory and can ensure more accurate monitoring.

Why is Inventory Counting Important?

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Accurately counting inventory is integral to a business's operation because it ensures they have the products necessary to meet demand and to maximize sales. Inventory counts can also provide many more benefits, such as-

Track Asset and Valuation

Many organizations have to invest their capital in assets, such as brick and mortar store locations, machinery, merchandise, and computers.

Executives must have a full scope of the value of these assets, as well as information about where it was procured and how much it cost. By keeping track of inventory, businesses will have these details on hand and can easily relay them to partners, accountants, and management teams.

Maintain Stock Levels

One of the many responsibilities a company has is to satisfy consumers' demands by providing the right products at the right time.

Inventory counts enable managers to see what goods they have and whether they need to replenish stock. It also helps prevent instances of over ordering items and having surplus inventory in the warehouse.

Forecast Demand

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By consistently counting inventory, business teams will be able to determine how much of a product was sold in a given period and how much was leftover. This information gives executives a better idea of what their consumers want and when they need to buy specific goods.

This is especially important for retailers that have fluctuating customer demands that change due to seasons, upcoming holidays, or weather.

Loss Prevention

Inventory counts allow businesses to promptly detect any discrepancies in stock levels. Further investigation can then be done to determine whether inventory was lost due to theft or mishandling. Appropriate protocols can be created and put in place to target specific reasons for inventory loss.

Additionally, if everyone in the company knows that inventory is diligently tracked and that it is a key component of business operations, staff will be more careful in storing stock items and in preventing theft.

Insurance

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In the case that an unexpected natural disaster occurs, businesses may need to claim their assets with their insurance company to protect their bottom line. If the company does regular inventory counts, this will be simple and hassle-free because they would already have comprehensive records regarding their inventory.

Informed Decisions

A full understanding of inventory enables business owners to make informed and data-driven decisions about organizing their stock in the warehouse.

For example, many warehouse managers will place their most valuable and fast-moving stock closer to the distribution or packing area of the facility. This streamlines the workflow at the warehouse and ensures employees can quickly reach these products.

Tips for Inventory Counting

Organizations can improve their inventory counts and guarantee a seamless and accurate process by implementing these best practices.

Use Inventory Technology

The latest inventory management software can streamline stock counting by allowing users to easily input numbers using an intuitive interface. Modern systems have voice search and barcode scanning capabilities which can make it easier to locate specific products and can drastically reduce the time it takes to perform inventory counts.

Additionally, the tools are also cloud-based and will oftentimes have mobile features, enabling business owners to track their inventory remotely at any time and from anywhere.

Schedule Physical Counts Beforehand

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Inventory counts can take a lot of time, especially if the company carries high volumes of products. Management should schedule ahead and define when and how often they will perform full counts. This will give teams time to prepare for the counts beforehand.

Generally, stores will either perform a full inventory count once a year, twice a year, or throughout the year in intervals. This depends on the business, the structure of the operation, and how much stock they have.

However, retail experts recommend doing a full inventory count during the last weekend of January since the holiday rush will be subsided or at the end of July before the new season approaches. Businesses should also try to perform counts after business hours to prevent having to close and lose potential customer sales.

Map the Store and Stockroom

Management can further simplify their inventory counts by having a clear map of the store and stock room, and detailing where each product is located.

This will serve as an informational guide for staff members and will prevent any delay in finding products. A map will also help managers organize and assign employees to a specific area or storeroom section.

Label Boxes and Storage Areas

Having a clear labeling system will promote accuracy, organization, and can ensure a smooth counting process. By making sure each product is labeled, staff will be less likely to miss it when counting.

Boxes, bins, and shelves should also be clearly defined and marked to ensure that employees know where inventory items need to go. For example, winter coats should be stored on the shelf labeled for outerwear.

Establish a Counting Team

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A knowledgeable counting team can improve inventory-counting accuracy. Managers should brief their teams about counting procedures and ensure that each member understands what they need to do and what section they are responsible for. With a thorough training program, the counting team will be able to work efficiently and quickly.

Effective inventory management requires careful and error-free inventory counts. Businesses should take the time to establish a productive counting process that best aligns with their operations. By doing so, businesses will gain insight into how to better serve their consumer base while protecting their profit margins.

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