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Counting Your Inventory

Inventory accuracy is something every company should strive for.  By having an accurate understanding of inventory types and quantities available, the organization can operate with greater efficiency.  Other benefits could include improved supply chain performance, better benchmarking, and lower inventory carrying costs.  In addition, accurate inventory is necessary to satisfy financial statement needs and tax regulations, as well as banking and insurance requirements.

There are two ways to track inventory – through a periodic physical count, which generally occurs annually, or through cycle counting, which occurs on a frequent basis.  There’s no “right” method – what works for one company may not be practical for another company.  However, most companies find that with an effective cycle count system, inventory accuracy as high as 99% can be reached.

Full Physical Counts

Full physical inventory counts are conducted on an annual basis and generally occur at year-end.  These counts generally require significant advance planning, as well as a large time investment on the day of the count.  Additionally, to ensure an accurate count, all shipping and receiving operations should be suspended, which generally leads to a disruption in operations or the count occurring on a weekend.  Full physical counts generally work best for companies with a low number of SKU’s.

Cycle Counts

Implementing an effective cycle count program increases inventory accuracy and is less disruptive to daily operations as the counts provide an ongoing measurement of inventory with a lower time commitment.  The best way to cycle count is to count a few items on a set schedule (can be daily, weekly or monthly), gradually working through the entire inventory, such that all items are counted multiple times each year.  When errors are found, they should be investigated and corrected immediately, which overall leads to increased inventory accuracy throughout the organization.


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