Best Practices – Inventory Management – Counting Your Inventory

 

Knowing what you have in your warehouse is the main function of inventory management.  Having an effective method of managing a count of your current inventory on hand will assure

that your records are accurate.

 

Count Inventory Periodic Inventory Count:

A periodic inventory count is one where the entire inventory is counted at some pre-determined interval.  It could be monthly, quarterly, semi-annually or annually.  The process of counting the entire inventory is time consuming, even when barcode is used. The count won’t be accurate if the business is functioning normally (meaning receiving new items, shipping, etc.) during the count.  A periodic inventory count requires that all functions that affect inventory levels stop until the items are counted and the count is reconciled.

 

Cycle Counts:

Because taking a periodic inventory count is such a major undertaking, even in a small business, many companies perform cycle counts throughout the year and a periodic count only at year-end as an audit.  Once an effective cycle count program is installed, many companies eliminate the periodic inventory count altogether!

The concept of an inventory cycle count is that by counting smaller sections of the inventory at frequent intervals (even daily), the process of the count is much less onerous and the inventory remains more accurate.  Errors in recording inventory quantities (received 4 but actually got 40) will be identified quickly.  By continually confirming on-hand quantities, outages will be significantly reduced and the result will be a more accurate real-time inventory.

  • Determine which items to count at what intervals.  High usage items or those that are especially valuable should be counted frequently.
  • After each cycle count, evaluate the adjustments necessary and use it as an opportunity for process improvement.  Why was the inventory inaccurate?  Plug the holes and improve the quality of your information on the fly rather than waiting for a year-end review.

Either of these methods will work for your company.  If your inventory is small and there aren’t items that are critical for your production or your customers, a periodic inventory count will work for you.  Also, if the unit cost of your items is small, it might not be worth counting everything.  In that case you could count only the fast moving items as a cycle count and do an annual periodic inventory for audit purposes.  The bottom line is there is no “one size fits all” method.

Our next discussion will cover how the Purchasing function affects your inventory management.

email