How to Take Physical Inventory in 12 Steps

by Katie Sawyer, 5 minutes read
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Inventory management is the backbone of a successful retail business. A properly stocked backroom ensures that customers find what they want the first time and your staff have the right supplies to perform their job.

At best, your daily operations are supported by organized stock so staff can focus on customers. At worst, you’re left with a logistical nightmare of missing items and lost sales.

To keep your inventory smoothly flowing, your team will need to carefully count, track, and process items on a recurring basis. As inventory season rolls around, are they motivated for the task or would they rather go into hiding? If you manage a retail business, keep the stress at bay with the following 12 steps for counting physical inventory.

1. Save the date

Whether you need to physically count your inventory monthly, quarterly, or at the end of a reporting period, it can be a major event. Taking inventory is a demanding process that may take place outside normal business hours.

Make sure you schedule staff appropriately so no one is taking on a opening shift and give your team plenty of notice so they can plan accordingly around their obligations. If you need to close your store during business hours, notify your customers by putting up a notice on your store or social media channels. Preparation is key.

2. Assign your counters

Counting inventory requires experience. Before you assign your counters, turn the role into a learning opportunity for both new and experienced staff by allowing employees to train one another and to provide checks and balances throughout the process.

Create a documented procedure and include details about how you’ll achieve a clear cut-off point for moving stock for an accurate count. Count teams are normally made up of two people, one person who does the counting and the other who records.

Provide your team with their schedules with as much notice as possible to ensure that everyone will be available at the designated date and time.

3. Inform all storage locations

Whether your business holds stock in outside storage or on consignment, make sure to notify relevant third parties that they should also conduct a physical count of inventory on the specified date.

Be sure to separate all recently received items so that they won’t be included in the count. If possible, postpone deliveries to the warehouse, so that there will be no fluctuation during the count. You’ll want a clear slate before proceeding with the count.

4. Review your stock

Evaluate your inventory a few days in advance to make sure that everything is in order. Check for incomplete or missing part numbers and items that are in a condition that would confuse the process. Make the necessary amendments to get your inventory ready for the physical count.

5. Lay out the land

Provide a map of your floor, backroom, and storage to make sure that employees know where they need to go. Whether you need to take pictures or draw a blueprint, a map will make it easier for you to assign staff to their stations.

Allocate a separate number for every display, rack, and shelf and create a tracking sheet to match every section. Visualizing your inventory space will mitigate confusion and help your staff to plug right in.

6. Create your categories

Categories will help you count and bundle similar items together. For a retail environment, categories might include footwear, tops, bottoms, outerwear, and accessories. These categories can also be further split by gender or color, depending on your business. Creating a structured system will make the counting process more seamless.

When planning your physical count, you’ll come across some items that have no allocated place in your store. You need to decide how to deal with items that don’t have a definite home. They might be returns or transfers from other locations. Set them aside for now.

7. Initiate a pre-count

Before the count begins, ensure that everything is marked and labeled appropriately. Failing to deal with loose items can be the source of headaches and frustration after all items have been counted. Get a head start by counting some items in advance.

After a pre-count is finished, store the counted items in sealed boxes. If on the day of the actual physical count, you find broken seals on boxes that have already been counted, the items will need to be recounted.

Set the stage for a dynamic, fast paced inventory day. Provide your team with lunch, refreshments, and a catchy playlist so the time will simply fly.

8. A few reminders

When the big day arrives, give your employees a refresher on what they learned in training. Thank them for participating in a critical and sometimes tedious process that keeps your business running.

If you’ve moved some items or stations, walk your employees through the store to avoid confusion. Hand out instructions that describe the counting process in easy steps. Although there shouldn’t be any items without prices or tags, stress the importance of collecting such items in a designated area, so that they can be dealt with last.

9. Demonstrate the process

Take the lead and show your employees how to properly take a physical count on inventory. Give them an example of a completed sheet and review their first attempt to check that the sheet was completed correctly.

Use the map to allocate different sections of the store to the count teams. Check-off the areas that have been counted on the map to avoid double-counting.

10. Ready, set, count

Your teams are ready to pair off and count. After the first person counts, the second person completes the count tag with the following sample information:

  • Location

  • Item description

  • Part number

  • Quantity

  • Unit of measure

When the count tag is completed, the team attaches the original to the inventory item and keeps a copy and hands in the tags to the person in charge, who will confirm that all tags have been completed thoroughly and none are missing.

11. Check your items again

Carry out spot checks of sections to find out whether items were counted correctly. If this audit produces an error, take the opportunity to double check every section. Going over what has already been counted will be worth the effort. A data entry team should also consist of two people to ensure the accuracy of the entries.

12. Finalize reporting

Capture your counts on a spreadsheet so you can tally your calculations. Your inventory reports will help you identify any disparities between the physical and book counts so can create an action plan to reduce any disparities.

Compile physical count inventory reports over a given period to identify possible trends. For example, is there an area in your store that has a particularly low count? Are there processes you can tighten to secure merchandise from loss? Your reports and results should impact every area of your business — from visual merchandising to financing.

Taking stock for a good future

With thoughtful planning, inventory season can be something your team looks forward to. You’ll be able to take corrective and preventative action to protect one of your most valuable assets — your stock.

To learn more about how to get ahead this year, download The 2021 State of Shift Work Report for the shift work trends managers have been ignoring — but shouldn’t.

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