Physical Inventory Counts: A 3-Part Guide on How You Can Excel Your Inventory Management

What is a Physical Inventory Count? 

A Physical Inventory Count (or just a Count for short) is a process of verifying the quantity and quality of the items that a business has in stock. While Inventory Counts can be costly and time-consuming, they do provide a number of very important benefits when executed properly. A count helps to ensure the accuracy of your inventory levels and aids in identifying and avoiding discrepancies in your physical inventory and the inventory on your financial statements.  Inventory Counts are an excellent way for businesses to control costs and optimize cash flow, as they help identify slow-moving or obsolete items while helping to avoid stock-outs for in-demand items. 

Plus, performing Inventory Counts on a regular basis is a crucial aspect of loss prevention, as it helps your business to detect and prevent theft, damage, or loss of inventory.  Counts can also be required for your business based on tax regulations, accounting rules and business valuations for banking and other purposes. 

There Are Two Main Types of Physical Inventory Counts: 

Full Inventory Counts: A full count of all inventory items. Provides maximum accuracy but requires stopping business operations. 

Cycle Counts: Partial counts of inventory done in cycles. Less disruptive but can be less accurate.  

Both techniques have their own advantages and disadvantages, and they can even be used in combination to optimize your inventory Process.  Either of the two primary methods can be performed effectively using Manual or Electronic counting methodologies, depending on your personnel capabilities, processes, technology, and systems.  

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Why Perform Counts? 

While time-consuming, physical inventory counts provide many critical benefits: 

• Verify the accuracy of inventory quantities 
• Identify discrepancies between physical and recorded inventory 
• Control costs by identifying obsolete or slow-moving items 
• Prevent stockouts of high-demand products 
• Detect loss, damage, or theft of inventory   
• Meet accounting, tax, and valuation requirements 

Manual vs. Electronic Counting  

Inventory can be counted manually or using electronic tools like barcode scanners. 

Manual Counting 

Manual counting is simple but prone to human error and inefficiency. This method involves physically counting the inventory levels of each item in your inventory by hand and tracking the results on a paper-based system. This tried-and-true method is the simplest and most traditional method for counting inventory, however, it is also the most prone to human error, inaccuracies, and inefficiencies.  When using the IndustriOS Physical Inventory Module to aid in this endeavour, you can remove a lot of the guesswork entailed in identifying what needs to be counted and when, whether you perform Regular Cycle Counts or Full Inventory Counts.   

Electronic Counting  

Electronic counting is faster, more accurate, and reduces human error, but requires an upfront investment in equipment and training. This method leverages barcode scanners, RFID tags, or other electronic devices to capture and record the inventory data automatically. This method is considered to be more accurate and faster, helping to reduce the impact of human error inherent in manual counting methods.   

Along with the advantages of Electronic Counting Methods come the relatively higher initial investment costs in purchasing the equipment & software required as well as the time required to train your employees to utilize these new tools. However, once these new technology tools have been integrated into your business processes, they can serve many additional functions when coupled with your IndustriOS ERP system.   

Mobile devices can be used within the IndustriOS system to perform a number of functions, including inventory Adjustments, Inventory Moves, Inventory Queries, Job Close transactions, Receiving transactions, Shipment transactions, Shop Floor transactions and more. Coupling smart technology with processes that integrate into your IndustriOS ERP software can create countless efficiencies, greatly reducing inaccurate record-keeping for these vital business transactions. 

Final Thoughts 

Physical inventory counts help businesses verify inventory accuracy, prevent losses, control costs, and meet requirements. The two main types are full counts of all inventory (more accurate but disruptive) and cycle counts done in batches (less disruptive). Inventory can be counted manually or using barcode scanners and other electronic tools. While manual counting is simpler, electronic counting is faster, more accurate, and reduces human error.  

If you would like to explore how these options could be integrated into your current processes, your IndustriOS Professional Services team can guide you every step of the way toward a simpler more efficient future. 

Stay tuned for Parts 2 and 3 where we’ll dive into planning your counts, choosing between cycle and full counts, and leveraging tools like IndustriOS to remove the headaches from inventory counting. 

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