Physical Inventory Management

Physical inventory is the count of the goods that you have in stock. These means the goods that have been counted by volume, weight, measurements, and units. Physical inventory is an asset; therefore, all inventory must be accounted for at the end of an accounting period.

Physical inventory management is a management process that businesses use to track their physical inventory. The physical inventory needs to maintain an optimal level because if it gets too little, it won’t be able to keep up with the demand of customers.

Before talking about the physical inventory count, there are several actions that you need to do: start planning your operations, set a date for the inventory, create a list with the items you want to count. Furthermore, you have to choose the staff that will participate in these operations and train the staff, check your software and equipment, notify the teams at the warehouses, prepare the space and freeze other activities while counting.

Physical Inventory Count

Businesses can use systems and processes to track their physical inventory level in real time. Furthermore, automation is an important tool that businesses can use to manage inventory flow in the supply chain from warehouse receiving to return management. Usually, a physical inventory count takes place at the end of a reporting period.

Types of Physical Inventory Counts

There are four types of inventory counts: manual, electronic, cycle counting and full inventory. Choosing the appropriate technique that suits your company makes the difference between good and bad data:

  • manual: involves physical counting and recording inventory levels. It uses count sheets and cards to record inventory. The disadvantage of manual inventory is that it is time-consuming, and it has the risk of human error;
  • electronic counting: uses scanners, mobile devices and barcodes. It uses a tracking system that is designed to enhance visibility by collecting information and tracking data throughout the supply chain. Companies can integrate an ERP system that will help them track available inventory, the location of products and data about SKU performance. We have an article that presents the top 10 benefits of Enterprise Resource Planning Systems.
  • cycle counting: with this method, companies split inventory into segments. The staff then counts random portions at any given time. Usually, these segments consist of faster-moving goods (counted more frequently) and slower moving goods (counted less frequently);
  • full inventory: the staff counts the full stock at one time.

People looking at tablet in warehouse

There Are a Few Types of Physical Inventory That Are Accounted for Through the Supply Chain:

  • Raw materials: unprocessed materials used to produce finished goods. Sometimes raw materials can be sold to other businesses;
  • Work-in-process: partially manufactured goods that are in the production phase at the moment;
  • Finished goods: SKUs ready to sell to the end user.
  • MRO (Maintenance, repair, and operations) supplies: tools and equipment used for the maintenance, repair, and running of production required to manufacture finished goods.

What Is a Physical Inventory Management Software, and Why Do You Need It?

A physical inventory management software is the type of software that allows all the information and physical assets to be stored in a central repository. Physical inventory counts are crucial for accurate inventory records. If you have the real picture of your stock, you can easily make more accurate forecasts and place better orders to your suppliers. This way, you will never run out of a product that your customers want.

When a company wants to conduct a physical inventory (for example at the end of the year), the software makes it easily manageable, especially because of hand held barcode scanners. This type of scanners allows workers to scan the label, enter the count and download the data in the software, which greatly reduces the time spent on these activities and the possibility of errors.

The Benefits of Doing a Physical Inventory Count using a software:

  • less time spent on counting;
  • full visibility across multiple fulfillment centers;
  • organized information;
  • updated inventory levels;
  • SKU velocity;
  • demand forecasting;
  • less staff involved in the process;
  • less possibility of errors;
  • fewer risks of products going unavailable;
  • inventory allocation;
  • more accurate overall forecasts.

Person holding a tablet in a warehouse

Overall, the key to a successful inventory count is a detailed planning. You need to plan, prepare and instruct your staff. It is best if you think of these actions a few months before. Clear instructions decrease the unknown factor and streamline operations. Moreover, there are several reasons why you should do a regular inventory counting using a physical inventory management software, such as creating an accurate budget for the future, monitoring theft, checking the balance levels. When your e-commerce business grows, and it is too challenging to handle the physical inventory in-house, you might want to consider partnering with an e-commerce fulfillment company that will aid you.

If you are interested in logistics, we have prepared an article for you about the use of artificial intelligence in logistics.