Physical inventories are typically performed once a year in order to determine the current inventory count and accuracy, fix inventory discrepancies, and locate missing products. Physical inventories may sound helpful, but they come with a number of issues that oftentimes cause more harm than good.
The Many Pitfalls of Taking Inventory Once a Year
- Taking physical inventory requires shutting everything down.
Nothing is going in or out of the warehouse while everything is counted. And, depending on the size of the warehouse and how many people are involved with the count, this downtime can take several hours or even several days. That means there is no money coming in during that time until operations resume. Physical inventory means potentially paying a lot of overtime.
- Taking physical counts of every item in the warehouse is labor intensive and slow.
To get the inventory done quickly, every person available is put on count duty. This often translates into a lot of overtime and a lot more expense for your payroll.
- Taking inventory once a year lets inaccuracies pile up.
Stock can be misplaced or lost even in the most efficient warehouse operations. If those items are not found, that product needs to be reordered to fulfill a customer's request, even though there may be sufficient stock already sitting somewhere in the warehouse. Over a year's time, these inaccuracies can pile up. Then, when the physical count is done, the numbers are all over the place, requiring a lot of counting, recounting, and searching to get things back into order and accurate.
- Inventory loss can easily occur if inventory is only taken once a year.
Your warehouse stores many valuable items that are susceptible to loss due to damage and/or theft. Often the existence and impact of these kinds of losses are only realized once a pattern is discovered through comparing several years of annual counts... and by then, it may be too late to address those issues appropriately.
- A once-a-year inventory promotes operational inefficiency.
When inventory is lost, mislabeled, or misplaced, someone has to go looking for it. A single warehouse worker can spend an hour or more every week searching for inventory that is not where it is supposed to be. Over the course of a year, this spent time can add up to a loss of hundreds of man hours and thousands of dollars.
The Solution: Cycle Counting
The pitfalls of annual physical inventories can wreak havoc on your warehouse efficiency, customer satisfaction, and your bottom line. However, they can be easily avoided by cycle counts. An automated warehouse management software that includes a cycle counting feature is exactly what you need to get started.
- Avoid operation shutdowns
What if you took inventory constantly throughout the year instead of shutting down to count? A WMS tracks the areas in the warehouse that need to be addressed and directs workers to complete counts and update the totals as needed. Better yet, it all happens in real time, which ensures that your productivity continues and that you're stocked and ready for customer orders. This also avoids having to hold up operations for any period of time.
- Avoid excessive overtime
If taking inventory is done constantly throughout the year, requiring overtime for inventory updates is no longer an issue. The cycle count process is part of routine warehouse operations, so it minimizes the costs of maintaining an accurate inventory.
- Avoid ongoing inaccuracies
By counting areas throughout the year, you are able to find inaccuracies sooner and identify misplaced or lost inventory to keep over-ordering errors to a minimum.
- Avoid loss due to damage or theft
With cycle counting, the actual count is compared to the count in the warehouse management software at least once a cycle. If there is a discrepancy, especially one that keeps re-occurring, managers can immediately identify the problem and take action to fix it.
- Avoid wasting time
Cycle counting helps minimize the occurrence of lost or misplaced inventory, as workers come across these items while counting other items. They can then get the lost inventory back to where it belongs, keeping the inventory accurate and the need to go searching for it later to a minimum.