Why Companies Need Physical Inventory Counts

Any company with a product-centric supply chain likely has anywhere from 20% to 30% of its assets tied up in inventory holding costs (depending on the specific industry). Those holding costs include not only the value of the products themselves, but also the cost of warehousing, controlling and insuring those goods. Ineffective inventory control processes can inflate this percentage, but good inventory management processes can help to minimize these costs.

Physical inventory counts are an essential part of keeping inventory records accurate and current.

Up-to-date inventory records provide for better forecasts of sales and purchases and ensure that organizations have the right amount of product on hand to be able to fulfill customer orders, make their own products or both.

Performing a physical inventory count ultimately benefits customers who don’t want to deal with uncertain stock levels in this era of instant gratification. With updated inventory data in hand, companies can fulfill orders promptly, replenish as needed and avoid costly overstock situations. They can also more effectively plan for losses (i.e. due to theft or breakage).

Every day that an item remains in inventory, its value decreases. Over time, the cost to stock the item begins to outweigh its actual value. By using scanners (or other stock-counting technology tools), immediately addressing inventory discrepancies and using inventory management software, companies can improve their counting accuracy and significantly reduce the amount of time required to conduct this vital project.

Other important reasons to perform regular inventory counts include:

  • To check and balance inventory levels. The physical inventory counts, which serve as a check and balance on cycle counting, help managers identify any discrepancies between cycle count reports and what items are actually in storage.
  • For theft monitoring and management. The difference between what appears in the inventory management system and what is present can be due to missing, stolen or broken items. Unless staff manually enter the items when these scenarios occur, the system can’t recognize them.
  • To develop an accurate business budget. Companies with precise inventory counts can better plan their budget for the coming year’s orders.
  • For accurate earnings reports. Inaccurate inventory means a company will report an incorrect amount for the cost of goods sold, the gross profit and net income. Public companies are accountable for providing correct figures in their annual reporting to their stakeholders.

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