Physical inventory is the operation consisting of manually counting all stock in the warehouse

Physical inventory: real control of goods in the warehouse

13 May 2021

Physical inventory is a process consisting of counting stock in the facility to know how much is available. Proper goods management prevents stockouts and excess goods, (more commonly known as overstock).

As this constitutes a manual process, it can be extremely labor-intensive. It involves the participation of a great deal of warehouse staff, so it needs to be optimally organized to be carried out as quickly and effectively as possible.

Stock is one of the most important — if not the most important — assets of any business. Thus, it must be strictly monitored. In this post, we analyze how to take physical inventory counts and answer several FAQs about this operation.

What’s physical inventory?

Physical inventory is a process aimed at knowing exactly which products are stored in the warehouse and in what quantities. Typically, operators go up and down the aisles, counting and jotting down all the products housed on the racks.

Depending on the needs of the company and the number of products available, inventory can be perpetual, yearly, or cycle counts. In any case, it should coincide with periods of less activity to thereby allocate more employees to this operation and carry it out more quickly, with less errors and without interrupting other tasks.

The objective of physical inventory counts is to compare the actual stock present in the facility with that registered in the book inventory (which can be managed by a WMS, an ERP system, or even more basically with Excel).

What’s the importance of physical inventory counts?

Inventory control is crucial for a business, as it results in increased productivity. Knowing the precise location of each product facilitates picking and avoids delays, which translates into greater customer satisfaction.

Physical inventory counts help to identify imbalances, examine their causes, and prevent them from happening again. For example, an operator might not be able to find a product theoretically in stock. An inspection of the entire warehouse reveals that the product in question was in the wrong location, and measures could then be taken to guard against this type of mistake.

Physical inventory counts also serve to verify and ensure that the products are in good condition. By counting the products one by one, you can visually assess their state. This is vital when managing a large number of SKUs.

Physical inventory is an operation that makes it possible to inspect the goods and verify that their condition is optimal
Physical inventory is an operation that makes it possible to inspect the goods and verify that their condition is optimal

Who should take physical inventory counts?

Physical inventory is a manual operation that involves numerous operators (although it could be automated in the future with the help of drones). Therefore, it should be planned enough in advance so that the team can carry out the process appropriately and in a timely fashion, thus minimizing its impact on the company’s business. It’s ideal to schedule exact days/dates for this count, prioritizing times of the year with less business activity.

Staff charged with taking physical inventory counts should be equipped with all the materials required for this and be able to accurately record the information. Likewise, common criteria should be laid down in order to carry out the process in a speedy, error-free way.

What do you need to take physical inventory counts?

It’s advisable for the warehouse to be clean and orderly beforehand. Although it may seem obvious, the logistics manager should always ensure the orderliness of the warehouse, since this contributes to more effective, streamlined operations (including this one).

Next, you need to decide which products should be counted (all items in the facility, goods in a specific aisle, products in a specific location, etc.).

Physical inventory can be done digitally or with a printed list. In the case of paper, employees have to make a note of the number of items counted for each type of good. When carried out digitally, using radiofrequency scanner, operators read the barcode of each product and indicate the quantity.

A warehouse management system, such as Easy WMS from Interlake Mecalux, is a tool that greatly facilitates physical inventory counts. This software sends instructions to the operators on which items to locate, making the overall calculation more effective.

Physical inventory counts of garments differentiate between models and sizes for each item
Physical inventory counts of garments differentiate between models and sizes for each item

How should you take physical inventory in the warehouse?

At this point, we should consider how to conduct inventory counting in the warehouse in a practical way. The dynamic is very simple: operators travel around the facility with a product list, counting and making a note of the goods located on the racks.

There are two ways to perform this operation effectively: with a general or a selective inventory. The choice between one method and the other will depend on how precise you need to be and how easy it will be to stop warehouse activity for a few hours, although the two aren’t mutually exclusive. For example, you can count specific items more frequently and take an inventory of the entire facility annually.

General inventory

This is a comprehensive inventory in which all goods in the warehouse are counted at the same time. Depending on the number of products available, the distances to be traveled, and the number of employees assigned to this job, the operation can require more or less time.

This inventory forces the rest of the operations in the facility to be stopped for the time necessary. Nevertheless, the results are much more accurate.

Selective inventory

This comprises a group of products previously selected (for example, particular SKUs or aisles) and is carried out periodically, whenever you have to verify that the physical stock matches the book inventory.

Although this process appears to be more drawn out — recounts can be done frequently — the advantage is that it doesn’t paralyze the other operations in the warehouse.

Selective inventory consists of counting specific SKUs or items located in designated aisles
Selective inventory consists of counting specific SKUs or items located in designated aisles

Inventory and stock management

All businesses must check the stock available in their warehouses. Physical inventory generally serves to provide better control over stock. Thus, the facility is managed more effectively, which means better customer service and increased competitiveness for the company.

To more accurately monitor the goods, it’s best to install a warehouse management system to guarantee real-time inventory. On the one hand, the WMS identifies the products from the moment they arrive at the facility and controls their traceability in real time. On the other hand, when the time is right, it sends instructions to operators on how to perform quick and error-free physical inventory counts.

Easy WMS from Interlake Mecalux is a cutting-edge, intuitive warehouse management system. It keeps a record of all stock in real time, effectively supervises warehouse operations, and assists staff in taking physical inventory counts. Contact us for more information on how to optimize management of your stock with the help of this WMS.