Inventory Counting Methods | 2 mins read

2 Main Inventory Counting Methods for Accurate Stock Takes

2 main inventory counting methods for accurate stock takes
Hanh Truong

By Hanh Truong

Counting inventory is the process of quantifying the number of stock businesses have in their storeroom or warehouse and updating their inventory systems.

Companies that regularly track their stock will have better insight into their product movement and overall operations. Utilizing proven methods for inventory counts can streamline the process and ensure accuracy.

2 Methods of Inventory Counting

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There are 2 main methods of inventory counting that organizations will commonly use.

Cycle Counting

Cycle counting is the practice of separating stock into groups and counting each one on a specified day.

Businesses will typically separate inventory based on product type, brand name, or location within the warehouse. This method enables warehouse managers to focus on small subsets of stock, rather than having to do inventory counts for the entire facility in one sitting.

By using this approach, management can decide how often they need to count their inventory. However, is recommended that companies count products that are popular and sell quickly more often than those that do not. This will ensure that business owners can identify low levels of stock and replenish specific items promptly, if necessary.

Cycle counting can also provide various benefits, such as

  • Detailed reports about inventory throughout the year.
  • Ability to identify discrepancies in inventory caused by theft or operational errors.
  • Since only small groups of inventory are being counted, the store can remain open for customers to come in and shop.

Physical Inventory Counts

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Organizations that perform physical inventory counts must track all of the products and supplies that they own. This method is usually only done once a year and the counts are used for accounting and tax purposes.

This process may be too time-consuming for some businesses, specifically those that carry large volumes of inventory.

However, full counts can be streamlined with the implementation of inventory management software. These cloud-based solutions enable business owners to quickly track their inventory and access real-time counts remotely from anywhere.

13 Steps for Inventory Counting

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To effectively count all inventory products and to maintain accurate records, businesses should utilize a well-defined, step-by-step, process.

1. Have Count Tags

Count tags are cards that contain a product's description, such as its location in the warehouse, quantity, and condition. Management should have enough on hand so employees can place a tag on each inventory item after counting it.

2. Assess Inventory Beforehand

Before conducting the count, warehouse managers should assess the inventory and ensure that all products are organized. This will prevent any delays caused by missing items or difficult packaging.

3. Conduct a Pre-Count

To simplify the full count, employees should count slow-moving products or items in boxes a few days before the scheduled count.

4. Do Data-Entry

Managers should check and ensure that all data is entered into the system before physical inventory counts are performed. These entries include customer returns and product movement within the facility.

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5. Communicate With Third-Party Locations

Organizations that have outside storage facilities should inform their third-party administrators that a full count is scheduled and that they need to track their stock and report the metrics to the main warehouse manager.

6. Pause Warehouse Operations

When counting, deliveries need to be paused and recently received products should be placed in a different area to ensure it does not get counted.

7. Have A Count Team

An inventory count team can help make sure stock is recorded accurately and that the counting protocols are followed properly. Each member of the team should have his or her specialized duty. For example, one person will do the counting, while another employee records the information on the count tag.

8. Have a Tag System

Each count team will usually have a set amount of count tags and they must return a specific number of tags to the warehouse manager to ensure that inventory was counted correctly.

9. Assign Count Areas

Count teams should be assigned to specific warehouse locations, shelves, or bins to perform their counts. It is helpful to have a detailed map of the facility's floor plan to indicate which team goes where.

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10. Count

Staff members should begin counting the inventory items from their assigned location and their team members should mark all the necessary information onto the count tag. The original tag is then attached to the product, while staff will keep the copy of the tag.

11. Validate Tags

After counting, the warehouse manager will verify that the tags were properly returned.

12. Put Tag Information into System

All information on the count tag is then recorded onto an online form to keep a record of the inventory counts. Managers should review their entries and ensure that all tags were entered in.

13. Assess Discrepancies

In the case that there are missing tags, warehouse management should investigate the products to identify any errors in counting.

By understanding the importance of inventory counts and developing a system that ensures accurate measurements, businesses will improve their warehouse operation and gain better visibility into their stock.