Inventory counting is a routine practice conducted in warehouses to accurately verify stock levels and locations. This process is essential for effectively planning procurement and logistics distribution tasks.
In this article, we will explore various methods for performing physical inventory counts in warehouses, along with tools and best practices that facilitate this process.
What is a Physical Inventory? What Are Its Goals?
A physical inventory is a detailed, ordered, and valued list of goods held by a company. These materials are categorized and assessed based on their characteristics to form part of the firm's assets. Conducting a physical inventory involves comparing stock quantities and attributes against the data recorded in the company’s records or IT system at a specific moment.
The primary objectives of conducting an inventory include identifying:
- Damaged or expired products.
- Obsolete stock: This may be due to changes in the product itself or because it has been replaced by another item. Monitoring such stock is crucial, as it directly affects storage costs and occupies valuable warehouse space.
- Discrepancies due to human error and system issues: Human errors are more prevalent; thus, maintaining organized daily operations can minimize imbalances.
- Missing goods: Known as shrinkage, this is often due to theft or other incidents.
Main Types of Inventory
Based on the frequency of goods counts, the following types of inventory are notable:
- Annual Inventory
- Periodic or Cyclical Inventory
- Real-Time or Perpetual Inventory
Additionally, you can alternate inventory types with special recounts when verification is needed for specific areas or groups of locations.
To perform a physical inventory in your warehouse, regardless of the technology used, follow these essential actions:
- Determine the Methodology
- Train Your Team of Operators
- Take Advantage of Off-Peak Times
- Notify Suppliers
- Check Your Documentary Tools and Resources
Inventory: From Excel to Warehouse Management Systems
Inventory results should be documented in either paper or computerized format, depending on the company's size. Here are the most popular options:
- Inventory with Excel or on Paper:
- Paper-based inventory is the simplest method, suitable only for businesses with minimal stock. However, counting goods manually without a WMS can lead to costly errors.
- Operators check stock against a paper list, creating a labor-intensive process prone to human error. An evolution of this method is using Excel templates, which offer a degree of automation for calculations. Extensions can even collect data directly from barcode readers, streamlining data input. Despite this improvement, it remains error-prone and does not guarantee effective stock control.
- Inventory with a WMS:
- Warehouse management systems represent a significant advancement in inventory accuracy and speed, especially for businesses with numerous SKUs. WMS dramatically reduce the likelihood of errors in complex inventory counting scenarios.
- Surprisingly, data from the Warehousing Education and Research Council indicates that two-thirds of U.S. warehouses still manage stock using methods other than a WMS, including Excel. This trend is likely to shift due to the benefits offered by WMS solutions.
Inventory Counting: The Importance of Doing It Well
Effective inventory control aims to maximize profits while minimizing storage costs, ensuring that service levels are maintained and customer satisfaction is improved.
Technologies such as warehouse management systems and RFID are contributing to more accurate processes. However, many businesses still rely on more manual methods for inventory counting in warehouses.