Tips & Insights

There are various techniques of inventory counts, defined below:

1. Periodic inventory count
2. Continuous, cycled or perpetual inventory count
3. Pick accuracy
4. Stockout validation
5. Annual inventory

1. Periodic Inventory Count

Periodic inventories can be monthly, quarterly or half-yearly checking of the entire inventory over one or two days dependent on the amount of inventory. The method and process followed is similar to an annual inventory count i.e. all items of physical inventory are counted and recorded on inventory sheets or scanned and then compared with the inventory validation file.
While inexpensive items may be checked once a year, expensive items or inventory with sell-by-dates should be checked more regularly.

2. Continuous,Cycled, Perpetual Inventory Count

With this system inventories are done throughout the year as per a pre-determined plan of action. A-items may be counted monthly, B-items counted weekly and C-items counted daily. This means that a perpetual inventory counting record for each item is maintained showing all transactions so that validations can be completed.

Investigations with regard to any discrepancies can be spread over the year and therefore correct comprehensive analysis can be achieved. Year-end accounts can also be prepared expeditiously if continuous validation is fulfilled as per a pre-determined plan.

There should be minimal or no impact on the operations of any stores as counting and validation is completed throughout the year based on perpetual inventory validation files. Any checks can be completed on a regular basis of perpetual inventory reports against the inventory validation file and anomalies can be identified quickly.

3. Pick Accuracy

Pick accuracy involves checks that a business makes at the time of receiving inventory from suppliers and/or while issuing items to store/customer. This is normally completed by picking orders going out to customers or within a warehouse, a cage is normally identified. This is where an invoice is present so that checks can be completed on the items going out or coming in against the invoice.

4. Stockout Validation

This method of stores inventory validation is completed when a particular item is out of stock or levels of inventory are very low. This type of validation is generally done by in-house staff. The stockout is recorded, reordered and reasons why the stockout has happened are identified to ensure the issue is not repeated.

5. Annual Inventory

When periodical inventory or continuous inventory validation is not undertaken then an annual inventory count is essential. Annual inventories are completed once a year. In certain instances the warehouse or store may be closed for a few days or the inventory count held out of working hours. In other places the receipts and invoices will be suspended until the inventory is over. As with the periodic inventory all items of physical inventory are counted and recorded on inventory sheets or scanned and then compared with the inventory validation file.

Whichever inventory count method you decide is best for you, inventories will provide the following crucial information for your business:

• Determines how well your business is operating
• Confirms your gross profit
• Pinpoints if you have any inventory problems, i.e. theft
• Aids you with your pricing strategy
• Provides an accurate account of the inventory you hold
• Highlights specific good and bad product sales performance
• Identify how to reduce inventory levels and improve cash flow