Physical Inventory Counts: 10 Expert Tips for Streamlining Procedures

What is a physical inventory count?

A physical inventory count identifies the amount of inventory a business stores in warehouses, shops, and other retail spaces. It includes identifying and tracking items by serial number, barcode, or other unique identifier.

From there, workers can record and compare the exact number of items in stock to the records stored in the business's inventory system. Once the count is completed, the results are analyzed and used to update the existing records.

Why is a physical inventory count important for inventory management?

It's important to do periodic inventory counts to ensure accuracy and efficiency. An inaccurate inventory count can lead to costly errors and significant production delays.

Luckily, many businesses are already wise to the need for accurate inventory records, as 87% of sellers say they use an inventory management technique like ABC analysis and FIFO.

“If anything, sellers today need to understand the different techniques and get smarter about inventory management strategies,” Mamnani says.

“Fortunately, lots of great inventory management solutions can give you some guidance. But this is where analytics becomes critical.”

Physical inventory counting allows your business to run efficiently and ensures you're not over- or under-stocking at any given time. A correct inventory count can help prevent shrinkage and losses, saving you time and money.

How to count inventory

There are several ways to conduct an inventory count, including manual and automated processes. The basic steps are the same regardless of the method you choose:

1. Identify and locate all inventory.
2. Count each item.
3. Compare the physical count to existing records.
4. Update inventory records accordingly.

You'll need to decide which inventory counting method you plan on using (i.e., manual or cycle counting). The exact method will depend on factors like the type of inventory and size of your company.

Types of inventory counts: Manual, electronic, and cycle counts

There are four main strategies for taking a physical inventory count: manual, electronic, cycle, and full inventory counting.

Manual stock count

Manual counting is the simplest form of inventory tracking in which you physically count every item by hand and manually enter the information into a spreadsheet, inventory report, or other database.

The main advantage of manual counting is that it's relatively inexpensive and allows for a more thorough inspection of each item.

You can also do it quickly with minimal disruption to operations. However, it's an inventory process prone to human error and may not be suitable for organizations that store thousands of items.

Electronic counting

Electronic counting employs barcodes, RFID scanners, and POS systems to count and track physical stock. Even smaller companies may use teams to count the inventory with scanners that update a database automatically.

The main advantage of electronic counting is that it's faster and more accurate than manual counting. It also requires fewer staff members than a manual count, reducing labor costs. However, it may be more expensive to implement and time-consuming.

Cycle counting

Inventory cycle counts involve dividing inventory into smaller sections wherein you only count certain items in that inventory cycle each time. An inventory cycle count happens more frequently than other methods, ensuring accuracy while reducing the time and effort required.

Many companies prefer this strategy as it doesn't require an operational shutdown. Teams can complete cycle counts during the workday with minimal disruption. Though some companies may find it hard to conduct cycle counts consistently.

Full inventory counting

Full inventory counting involves physically counting all items in a warehouse or retail space, usually with the assistance of electronic scanners.

Companies can conduct annual physical counts with this method, and many consider it the most accurate inventory counting method.

Many businesses prefer this method as it provides accurate inventory records for annual financial statements. However, this usually requires businesses to shut down operations for a short time and can be labor-intensive.

10 tips for taking physical inventory counts

How you complete an inventory count depends on the size of your business and the type of inventory you sell. Here are 10 tips for simplifying the process.

1. Create inventory count procedures

Creating detailed physical inventory count procedures can help streamline the process. Establishing guidelines and expectations ensures that you or your counting team completes each step accurately and promptly.

You'll also want to use this time to decide how often you'll count your inventory and which counting method is most suitable.

Using business analytics tools to forecast inventory trends can help you decide which strategy works best for your business. For example, seasonal and may require more frequent counting.

2. Prepare your store

Preparation is critical to an efficient inventory count. Start by making sure you have a store map that clearly denotes where teams can find each inventory item.

From there, create a physical inventory count checklist to ensure teams don't leave anything behind. Create SKUs correctly, label each item with a unique identifier, and maintain an organized counting system.

This will help reduce errors and make spotting discrepancies between the inventory and existing records easier.

3. Choose a date that works for you

When scheduling an inventory count, choose a date that works best for your business. This could mean choosing a time when fewer people are in the store or there is less demand for your products.

Depending on how you choose to count your inventory, it may be difficult to find a time of day that doesn't cause disruptions. If you're counting manually, choose a time when the store is closed or not very busy.

4. Organize your inventory

Organize your inventory to make it easier to identify items you need to count. Take the time to organize your inventory and ensure all items are clearly labeled. Doing this makes it easier to locate them during the counting process.

This is also an excellent time to clean and reorganize the shelves or warehouse. This will make identifying missing items, wrong stock levels, and mislabeled products easier.

5. Invest in technology

Technology such as barcode scanners and inventory management software can help streamline the counting process. Barcode scanners are especially useful as they allow you to scan items and record their details quickly.

Before completing the inventory count, check the equipment to ensure it functions. If any equipment is broken or malfunctioning, replace or repair it before starting the count.

6. Break up inventory into sections

If you decide to take the cycle counting route, breaking up your inventory into smaller sections is best. From there, you can track which items you counted each time, reducing the time you spend counting overall.

By breaking up your inventory into sections, you can also reduce the number of times you need to count and ensure accuracy. It's important to organize the inventory into categories such as size, weight, color, and type when cycle counting.

7. Train counting teams on best practices

Ensure that all staff members involved in the inventory count are properly trained on the process and clearly understand their role. Proper training can help reduce errors and ensure accuracy.

If you're using scanners or software, adequately train teams on how to use the equipment, so they can complete the count efficiently.

8. Address discrepancies

Address any discrepancies you or your team find during the inventory count, including items not counted or miscounted. If there are significant discrepancies, quickly identify the source of the issue and take corrective action.

This action could include re-counting items or identifying any problems with your inventory management system. Investigating and rectifying discrepancies can help ensure the accuracy of your inventory levels.

9. Perform regular inventory counts

Counting items regularly helps keep inventory levels accurate and up to date — and can help you avoid costly errors in the long run. It's also important to make sure that all staff involved in the counting process are aware of any changes and updates to the system or procedures.

Deciding on what intervals you should count your items can be difficult. In general, it is best to establish a system that works for your business and stick to it. Intervals include counting items weekly, monthly, or annually.

10. Sync inventory between in-person and online sales

An accurate, periodic inventory count is great. But you won't get very far if your online stock counts don't match what you have in your warehouse or retail space.

A multichannel inventory sync solution can automatically update prices and counts on a schedule. So every time a customer buys something in-store or at your POS terminal, your online listings will reflect what's available to customers who buy online.