What are Inventory Count Procedures?

Inventory Count Procedures

Inventory count procedures, often referred to as a physical inventory count or stock take, involve the counting of physical goods to ensure the quantity matches the recorded amount in the company’s inventory system. These procedures are a crucial part of inventory management and financial accuracy, helping businesses identify discrepancies and maintain proper records. They also help to detect shrinkage due to theft, damage, and errors.

Here are the typical steps involved in inventory count procedures:

1. Preparation: Before the inventory count begins, a plan is usually established detailing when and how the count will occur. This might involve scheduling staff, arranging for additional resources if necessary, and determining the order and method of counting. It’s also common to clean and organize the inventory beforehand, making items easier to count.
2. System Freeze: The company will usually stop receiving new inventory and stop shipping inventory to customers during the count to prevent the numbers from changing.
3. Counting: Staff physically count each item in the inventory. Depending on the size of the inventory, this could be a simple manual count, or it could involve the use of technology such as barcode scanners. High-value items might be counted multiple times for accuracy.
4. Record Keeping: Each counted item is documented with details like quantity, description, location, etc.
5. Verification: The physical count results are compared to the recorded inventory levels in the company’s system. Discrepancies are investigated, and recount may be done for certain items if necessary.
6. Adjustments: If discrepancies are found, the inventory records in the company’s system are adjusted to match the physical count. These adjustments should be approved by management and documented for future reference.
7. Review: The inventory count procedures and results are reviewed to identify any issues that could be improved in the future. This might involve assessing the accuracy of the count, the efficiency of the process, or identifying areas where shrinkage is occurring.

The frequency of inventory counts can vary from business to business. Some perform a full inventory count annually, often at the end of the fiscal year, while others may perform cycle counts, which involve counting a small subset of the inventory at regular intervals throughout the year.

Example of Inventory Count Procedures

Let’s consider a hypothetical example of a small retail clothing store planning and conducting an inventory count.

• Preparation: The store manager schedules the inventory count for after store hours to avoid interrupting business. They organize a team of employees to conduct the count and provide them with a brief training on the count procedure. The inventory is organized, and all items are made easily accessible.
• System Freeze: During the count, the store stops receiving new inventory shipments and halts any ongoing online order processing.
• Counting: The team starts counting items, section by section. They count each item type in a specific area before moving on to the next. For instance, they count all small-sized red shirts before counting medium-sized red shirts. They use handheld scanners to record the barcode and quantity of each item.
• Record Keeping: The scanned information is uploaded to a spreadsheet, which contains columns for item description, SKU (Stock Keeping Unit), location, and counted quantity.
• Verification: After all items have been counted and recorded, the results are compared to the current inventory levels in the store’s retail management system.
• Adjustments: Discrepancies are investigated. For example, if the system indicates there should be 50 small red shirts but only 48 were counted, the team checks the store again to see if the missing shirts were misplaced. If the missing shirts aren’t found, the store manager adjusts the system to reflect the actual physical count of 48 shirts. All such adjustments are documented, and the reasons for the discrepancies are noted.
• Review: After the count, the manager reviews the process. They discover that the discrepancies were mainly due to misplacement of items and errors during receiving. To improve future counts and maintain better inventory accuracy, they decide to implement more rigorous procedures during receiving and regular smaller scale (cycle) counts.

Remember, this is a simplified example. In real scenarios, especially in larger businesses, inventory count procedures could be more complex and may involve sophisticated software and hardware.