Guide to Inventory Count

Any business that handles inventory – whether products for retail, raw materials for manufacturing, or spare parts for maintenance – needs to have an inventory count system in place.

Inventory counts help keep businesses prepared and stocked with the resources they need to run their businesses.  They help maintain accurate records, ensure proper turnover of obsolete items, and sort out discrepancies when items are inevitably misplaced, stolen, or damaged.

In this article, we’ll help you understand why inventory counts are necessary, explain the types and methods of inventory counting, and share best practices for conducting them.

What is an inventory count?

An inventory count is the process of periodically counting and verifying the physical quantities of a particular type or category of items in stock. It is a critical aspect of warehouse management.

In regard to facility maintenance, inventory counting involves tracking and managing spare parts, tools, raw materials, and supplies essential for the upkeep and repair of facility infrastructure and equipment. For manufacturing plants, inventory counts support productivity by ensuring the availability of spare parts needed for quick repairs that minimize downtime. Inventory counts ensure that any necessary items (or in-demand products for retailers) are available when needed.

Why perform an inventory count?

Inventory counting helps organizations understand discrepancies between inventory records and actual stock, and keeps operations running smoothly. The last thing you need is unexpected stockouts or delays in maintenance due to missing parts, which can lead to extended downtime and increased costs.

Benefits of inventory counting include:

• Better accuracy: Inventory counts help maintain accurate stock records, preventing overstocking or stockouts.
• Optimized maintenance operations: Ensure that your maintenance team has the parts and tools they need, when they need it, minimizing downtime.
• Reduced costs: Accurate inventory counts help organizations avoid unnecessary purchases and better identify obsolete or excess inventory.
• Improved efficiency: More accurate records streamline maintenance processes by ensuring quick access to inventory information.
• Compliance adherence: Accurate inventory records help in complying with industry regulations.
• Better planning: Inventory counts are helpful for planning and forecasting maintenance needs and inventory requirements.

Types of inventory count

Organizations conduct either manual or electronic inventory counts, depending on their systems and the volume of inventory they maintain. While manual counting can be more prone to human error, electronic counting methods offer greater accuracy and efficiency, making them the preferred choice for many businesses.

Whether performed manually or electronically, there are different types of inventory counting methods that companies use based on their specific needs:

Random sampling

Random sampling, also called spot sampling, involves counting a small, random portion of inventory to estimate the total stock. Companies use this type of stock counting to quickly assess the accuracy of inventory records without conducting a full count. While this type of counting is quick and useful for high-value or high-turnover items, it may not provide a comprehensive view of inventory accuracy since the results are only as reliable as the sample size and selection process.

Perpetual counting

Perpetual counting typically uses inventory tracking software to conduct real-time counts continuously as inventory is used. This is ideal for businesses that have a high volume of transactions, like retail or e-commerce, where real-time data is important. Perpetual counts provide up-to-date inventory levels, reduce the need for physical counts, and enhance accuracy.

Cycle counting

Cycle counting, or periodic counting, involves conducting regular counts of different sections of inventory on a rotating schedule. It is suitable for maintaining ongoing inventory accuracy without major operational disruptions. Cycle counting is great for keeping inventory records accurate throughout the year and helps identify and correct issues promptly. However, it does require diligent scheduling, and discrepancies can be missed if not properly managed.

Full inventory counting

Full inventory counting is performing a complete count of all inventory items at once. Organizations that do this typically conduct full inventory counts once or twice a year. A full inventory count provides a comprehensive snapshot of a company's inventory and is often essential for financial reporting and auditing. It also helps identify significant discrepancies. The biggest drawback of this method is that it can disrupt regular operations since it is time-consuming, labor-intensive, and requires significant planning and coordination.

How to perform an inventory count

The method of inventory counting varies by company, and many companies use multiple methods for the best accuracy. However, the basic steps remain the same.

Step 1: Determine the scope

The first step of any inventory count is to determine its scope. Identify which items will be included in the count, focusing on high-value, high-turnover, or critical maintenance parts. Also, be sure to determine which areas or storage locations the inventory count will cover.Define the goals of the count, like improving the accuracy of records, identifying discrepancies, or assessing stock levels.

Step 2: Prepare for the count

Preparing for the count involves gathering materials, organizing inventory, and communicating the plan to your counting team. Collect all necessary tools and materials, such as count sheets, barcode scanners, RFID readers, pens, and clipboards. Clean and organize the inventory area to make items easily accessible and identifiable. Label shelves and bins clearly. Inform relevant staff about the inventory count schedule and procedures to minimize disruptions and ensure cooperation.

Step 3: Make assignments

Once the plan is in place, assign specific counting tasks to team members based on their expertise and familiarity with the inventory. Ensure each participant understands the counting procedures and train them on any electronic counting tools they will be using.

Step 4: Count active inventory

Conduct a physical count of each item systematically, section by section, and record the counts via your organization’s chosen method–count sheets, barcode scanners, or inventory software. Pay close attention to detail to ensure accurate counts and double-check quantities for items that are difficult to count.This step includes identifying expired or obsolete items that have not yet been removed from inventory shelves.

Step 5: Verify the numbers

After the initial count is complete, it’s important to verify the amount of inventory. Have a second team or individual verify the counts, especially for high-value or critical parts. Compare the counts with existing inventory records and take note of any discrepancies. Confirm the totals by consolidating the verified counts and ensuring all items and locations have been accounted for and documented.

Step 6: Investigate discrepancies

Highlight any discrepancies between the physical count and recorded parts inventory levels. Investigate the reasons for discrepancies, such as theft, loss, damage, or recording errors. Review recent inventory transactions and adjustments.Once the investigation is complete, update inventory records to reflect the accurate counts and address any underlying issues that caused the discrepancies.

Step 7: Report the results

Gather the results and compile a comprehensive report of the inventory count results. Inventory tracking software can be particularly helpful in generating detailed reports. Identify and emphasize the causes of any significant discrepancies, inventory shortages, or overages. Share the report with relevant stakeholders, including management, finance, and maintenance teams.

Step 8: Conduct analysis

Examine the inventory data to identify trends, patterns, and areas for improvement. Look for recurring discrepancies, stock levels, and turnover rates. Use the analysis to pinpoint inefficiencies or gaps in inventory management practices to address improvements you can make to your processes. Implement changes to your procedures according to your findings and continuously monitor progress to maintain accuracy and efficiency.

Best practices for inventory counting

Every organization does inventory counting a little differently, but these best practices can help you refine your strategy and ensure the highest accuracy.

Utilize technology

Technology, such as inventory tracking and barcode or RFID systems, streamline the counting process. Tools like a computerized maintenance management system (CMMS) use inventory tracking capabilities and often have automated systems in place for real-time tracking and reporting.

Regularly schedule counts

Perform cycle counts regularly to keep your inventory records as accurate as possible. To maximize productivity, schedule full inventory counts during periods of low activity for minimal disruption.

Maintain organized inventory

It is important to keep inventory areas clean and well-organized to facilitate easy counting. Make sure to label shelves and storage areas clearly so team members can quickly and efficiently conduct their counts.

Set clear policies and procedures

Establish standard operating procedures around inventory management and counts to ensure consistency. Define roles and responsibilities for each team member to ensure accountability.

Train staff

Provide thorough training on inventory counting procedures and the associated technologies your organization uses. Emphasize the importance of accuracy and attention to detail.

Review and adjust regularly

As with any other strategy, it is wise to review and continuously change procedures as necessary to ensure they remain effective. Adjust procedures based on analysis and feedback from inventory counts.

Improve your counts with inventory management software

Limble CMMS has inventory tracking capabilities that can enhance your organization’s inventory count process and accuracy. Limble utilizes automation, offers integration with other key technologies, and generates inventory reports to help you make informed decisions.

Learn more about our inventory tracking capabilities by starting your free demo, or reach out to our team today!