Planning For Year-End Physical Inventory
With the end of the year rapidly approaching its time to start thinking about closing out 2019 strong and getting ready for 2020. Part of the year end process typically involves doing a physical inventory count. If your current business process doesn’t involve taking a physical inventory and you aren’t doing cycle counts, then its time to start thinking about preparing your business for doing this process next year.
How to prepare for a physical inventory
1. Decide on a block of time where you will not be shipping or manufacturing any products. This might be a weekend or over a holiday weekend. Many businesses find the time between Christmas and New Years the best time to do this. Some systems will allow you to continue to receive and issue inventory while you are counting it, but this can cause confusion for the people doing the count and it’s just smoother to not move the inventory.
2. Pre-count your slow moving or older inventory. You know that stuff that’s on the top shelf of the rack that is covered in dust and has been there “forever”? Go ahead and count that now and put a sticker on it with the count number so that later you can just enter in the number and not worry about counting all that stuff.
3. Try to eliminate as much work in process (WIP) as possible. If you are a manufacturer, counting your in-process inventory can be a challenge. Try to have what you reasonably can, reported into some level of completed product. And on top of that have a plan about how to handle raw materials that are in process. Some of this will have to do with how you ERP system handles work in process. What’s important though is that the people counting know how this should be handled. For example, if a piece of steel is placed against the wall where it was being cut for a job, is that still a raw material to be counted or is it tied up in WIP? Make sure everyone is on the same page
4. Mark what has been counted. We typically recommend using stickers to mark what has been counted. And have two colors because you probably will want to count it twice. This seems very basic, but having a physical marker indicating what has been counted and what hasn’t is a huge benefit
5. Utilize your ERP system to count. In a perfect work you’ve already implemented a bar-coding Warehouse Management System (WMS) and will be able to use that to count. Barring that though, make sure to leverage the functionality in your system to perform the count. To many times businesses will do counts on spreadsheet or on paper tickets and then try to adjust it in the ERP and it just creates a lot of additional overhead and makes finding variances challenging
6. Monitor your variances. Make sure to monitor these the entire time, not just at the end. Someone is going to transpose a number or put an extra 0 in something at some point and that can end up being thousands or tens of thousands of dollars on the books. Start monitoring early because nothing is worse than trying to chase down a 50k variance three days into the count when everyone is tired and grouchy.
There’s a lot more that goes into a successful year-end inventory count, but these steps will get you going in the right direction.
Contact us if you’d like more assistance and we can help!