How to Decrease Surprises During Physical Inventory Counts

Counting inventories of raw materials, work in progress, finished goods, and parts and supplies is necessary for accurate recordkeeping, but it can be tedious. There is almost always a variance between what is on the shelves and what is in your perpetual inventory system or general ledger. A relatively small difference should not give rise to panic. However, a variance that exceeds three percent to five percent is a cause for concern. Here are some ideas for minimizing discrepancies.

Finding the cause

Most differences result from timing gaps between order entry, physical receipt of inventory items and invoice entry. Open orders and returns also cause legitimate discrepancies. However, some variances signal problems, such as careless receiving and ordering practices, billing and data entry errors, poor communication between the production, warehouse, and accounting departments, and even fraud.

Monthly inventory counts can catch errors before they spiral out of control. Your objectives: Identify sources of any discrepancies; locate missing, damaged, or inaccurately priced items; and train employees to prevent mistakes from recurring.

Implementing safeguards

Inventory can be a prime target for thieves inside and outside your organization. To prevent shrinkage, conduct background checks on personnel and consider such physical controls as:

  • Locking inventory storerooms even during business hours
  • Limiting access to the storeroom & its keys
  • Installing security cameras, alarms, & mirrors
  • Recording serial numbers or tags for high-value items
  • Spot-checking inventories periodically

The cost of these safeguards is recouped with fewer write-offs for lost, stolen, or damaged items. They also create a sense of accountability for personnel with access to the storeroom.

Outsourcing your count

A third-party count not only may be more objective than one done by employees — especially in case of fraud — but also can be faster. We participate in dozens of physical counts each year and know the most efficient approach. Contact us for help counting and managing your inventory.

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