How to minimize surprises during physical inventory counts

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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’s almost always a variance between what’s on the shelves and what’s in your perpetual inventory system or general ledger. A relatively small difference shouldn’t give rise to panic. But a variance that exceeds 3% to 5% 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. But 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 and its keys,
  • Installing security cameras, alarms and mirrors,
  • Recording serial numbers or tags for high-value items, and
  • 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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