Preparing for a Physical Inventory

FOR IMMEDIATE RELEASE
Boise, Idaho, United States of America (Free-Press-Release.com) December 2, 2011 -- Preparing for a Physical Inventory
by George Schaefer - CMS Business Partner

Taking a physical inventory can be time consuming and tedious for employees, but its importance goes beyond pleasing an accountant or tax collection agency. The primary purpose of a physical inventory is to verify that the on-hand quantity of each item in a distributor’s computer system reflects what is actually on the shelf. This in turn contributes to a smoother ordering system that will help salespeople be more confident when they sell items and keeps happy customers coming back. Now, the key to successful physical inventory is planning, even before the actual physical inventory count takes place. In this article, we will analyze some steps to prepare for physical inventory.

1. Assign a single individual to be responsible for carrying out the process. Even though this individual might be a lower rank than other staff members, all members of the company must be instructed to give this individual their full cooperation. This person might overrule a higher-level staff member if what the staff member wants would hinder the accuracy of the inventory (subject to compromise or overruling by top management).

2. Identify inventory by part number. By having everything pre-identified by part number, the speed and accuracy of taking inventory will be improved. Sometimes pre-counts can be made in which damaged/obsolete/over-stock items should be moved to a special area, if practical.

3. Liquidate overstocks, substandard inventory, and obsolete inventory. The best strategy, however, is to think of inventory liquidation as an ongoing process. When a firm prepares for physical inventory, they must continuously take the necessary steps to get rid of that "extra stuff” in the warehouse. For items that will be returned to the vendors, someone other than purchasing staff needs to monitor the purchasing department status on each item.

4. Minimize any inventory at outside processors, sub-contractors, customers, or other locations if applicable. Counts from any offsite locations should be obtained by in-house staff where practical, or by others when its not practical to send in-house staff.

5. Notify material vendors to not ship any materials for a week before the physical inventory count and 2-3 days after the inventory count to minimize in transit inventory and inventory that arrives during the inventory count.

6. Notify the sales, shipping, and purchasing departments on what days there will be no shipments to customers and outside processors. Extra efforts might be needed to maximize all shipments to customers before the inventory count to reduce the number of items that need to be counted.

7. Process all customer returns and credits prior to the completion of the inventory.

8. Assign someone to review costing problems

Part numbers with zero cost
Parts with unreasonable cost compared to the selling price (usually a unit of measure problem)
Parts that need to be adjusted to the lower of cost or market (obsolete, damaged, etc.)
On kitted/assembled items, the components need to be reviewed for accuracy/completeness

9. Disposition/repair/reship in-house returns from customers as much as possible prior to the physical inventory. Customers who request returns just before the physical inventory should be asked to hold shipping the return until 3 days after the physical inventory where possible.

10. Order supplies for the physical inventory.

Clipboards
Notepads
Pens, pencils, markers
Label dots of one bright color to indicate if an item has been counted (each inventory, the color should be changed to indicate if that item was present at the last inventory)
Calculators
Flashlights
Inventory tags (if its going to be a tag inventory)
Part number lists
Counting scales (if bulk small parts are to be counted)

11. Determine the counting procedures: usually two individuals to work as a team is best.

12. Select staff to do the counting and count auditing.

13. Train staff to do the counting/auditing.

14. Stage supplies for the physical inventory.

George Schaefer
PhyInv@cmstothemax.com

http://www.cougarmtn.com/b40/Preparing_for_a_Physical_Inventory

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