Tips for a
Successful Annual Inventory Count
By Jason Bader, Principal
The Distribution Team
that time of year again. The leaves have turned. The NFL
is in full swing. The political season has come to a
close. And, the dreaded annual inventory count is on the
horizon. During my distribution career, I was involved
in no less than twenty of these events. Let me tell you,
they were not something to look forward to. Several
hapless souls would trudge in to the warehouse on
Saturday morning ready to spend the day sifting through
our wares. We would entice them with coffee, orange
juice and donuts, the official snack food of inventory
counting. We would “invite” people from the clerical
staff to join in the merriment. Wouldn’t want to make
them feel left out. To compound the fun, we would invite
the offspring of our employees and a few manufacturers
reps to round out the crew. Is it any wonder that
certain employees grandmothers conveniently “passed
away” the weekend of the count?
The challenge of an inventory count is that everyone
really needs to know how to count and what they are
counting. It may seem like I am picking on my
co-worker’s ability to count, but I am referring to
common counting errors that occur because of package
sizes. If five blades come in the package, do we count
it as 1 or 5? Unfortunately, the teenage son of the
accounts payable manager is probably not going to know
the answer. This is why I believe that the inventory in
the system on Friday is probably more accurate than what
we have on record after the counting weekend.
Since many of us are forced to go through the annual
counting ritual because of an outside party, I would
like offer some suggestions on how to make it better.
These are observations based on participating and
running so many of these events.
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the warehouse. Cleanliness is next to godliness in
wholesale distribution. When I go visit a distributors
warehouse, I can usually get a sense of the inventory
accuracy by whether the place is organized. If I see
boxes in the aisles, items tucked in the corners and
cobwebs on the broom handle, I know that these folks are
probably not paying much attention to accuracy. The
folks in customer service probably share my opinion and
don’t have a whole lot of faith in the inventory numbers
on the screen.
Do some counting before the event. Over the years I have
seen this attempted several time, but unfortunately it
tends to create confusion on the day of the event. Some
distributors will try to count a particular product line
or category. For me, it was broken boxes of fasteners
that needed to be weighed out. Invariably, we would try
to count one of our faster moving items and the count
would change before the event. This leads to a
duplication of counting effort.
The best way to count ahead of the event is to pick off
the slower moving items. Run a hits ranking and try to
count the bottom 50% of the list ahead of time. By their
very nature, these items will rarely move within the
next 6 weeks. Have your material handling team count the
items. Identify the counted items with a large
fluorescent sticker containing the quantity found.
You will most likely have to enter the count during the
day of the event or the system will trigger a recount
because nothing was entered.
Freeze the business. On the evening before the event,
you need to stop doing business. This may sound silly,
but I have had to chase more than one salesman off the
system while the count was going on. It is a bad idea to
have inventory moving while you are making a physical
count. Run an open transfer report. What items have not
made it to their final destination? Make sure that the
inventory is allocated to the proper location.
Make sure that printed pick tickets are pulled off the
shelf and staged. If you leave inventory on the shelf
you will trigger a discrepancy. This will force the
count to drag out while the problem is corrected. If an
order does not need to be picked until a later date,
make sure to enter it as a future order. The system will
handle inventory allocation differently and not screw up
the count. If you have received inventory into the
system, get it on the shelf. Any inventory that has not
be entered into the system must be clearly identified
with “DO NOT COUNT” signage. According to the system, it
hasn’t hit our dock.
Create the count teams ahead of time. Do not leave this
up to your employees. Invariably, inexperienced people
will wind up together. You really want an experienced
person with a person who doesn’t regularly touch the
inventory. Make sure that everyone knows the role they
play in the team. In order to get the best count, the
experienced person should be counting the items while
the rookie does the recording. Too often, the rookie is
sent up the pallet rack. This is where we run into unit
of measure and packaging problems. By having the sales
people combing over our stocking items, perhaps they
will be reminded of the breadth of product we invest in.
Count shelf to sheet. Too often I see people looking
down at the count sheet and calling out a part number.
The seeker goes to find the item and give the count.
This can cause us to skip around on the shelf and miss
things that fit in the cracks. By counting shelf to
sheet, the counter is directing the team. Look at the
shelf, count the item and find it on the sheet. By using
this method, we add an element of discovery. Over the
course of the year, non-stock items magically appear on
the shelf. When a customer decides not to take an item
we have bought for them, we should return it directly to
the supplier. Unfortunately, we tend to be really poor
at returning non-stock items. It is much easier to
shoehorn it into the shelves close to similar items. If
the non-stock item is not entered into the system, or
staged in a return area, we have no chance of getting
our money out.
Run the variance by units. Many distributors set their
acceptable variance by dollars.
Anything outside an acceptable dollar variance will
trigger a recount of that item. This is great if you are
trying to figure out how much cash you have in the
warehouse. It does nothing to improve the customer
service aspect of your inventory accuracy.
I can remember looking at a supplier line after a count.
We were only off by $200 on the whole line. When we had
about $40,000 invested in the line, a $200 variance
looked pretty good. Most people would say that our
counts were really accurate. As I looked at a variance
report by units, it read like a Coney Island roller
coaster. We increased the items on some and decreased on
others. The dollars balanced out, but the unit counts
were all over the place. While we were busy patting
ourselves on the back, our customer service people knew
what was up. They still couldn’t trust the system.
These are just a few suggestions based on my experience.
There are countless more tips and tricks that you all
have come across. I would love to hear them. The annual
count has been a distribution staple for many years. It
is wrought with failure and leads to further
inefficiency. In lieu of a solid cycle counting program,
the counting event is a necessary evil. With a clearly
defined plan and a little organization ahead of time, it
can be a little less painful that the one last year.
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