Blog Post

Why Is Physical Inventory So important?

Published on

November 23, 2021

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by

Cristi Womack

Who likes to pay taxes? Who likes to pay more in taxes than they should? Or, who likes to pay less one year, then find a mistake and pay more the next to make up for the deficit? No one, that is who. Without a timely and accurate inventory process, this is a real-life scenario and one that no company wants to face. 


Why Is Physical Inventory So Important?

There are a couple of reasons a company should implement a physical inventory process. Money and customer satisfaction, which in turn goes back to money. If you do not do inventory counts throughout the year, or at least annually, you could be overstating inventory which in turn makes the company pay more in taxes than necessary. More importantly, it makes it hard to determine if you have inventory shrinkage or the correct stock on hand to fulfill customers' needs. 


Doing a physical inventory count can seem overwhelming; however, it is not a wasted investment. The more accurate your inventory, the better your customer satisfaction. Having the right part at the right time is a win-win for every company and every customer. 


With growing technology use, the buying process has changed dramatically. People are busy and more and more apt to either order online or research where an item is before heading out to the store. Customers depend on accurate inventory as they map their day and if your inventory is wrong, the best-laid plans can go up in smoke. We have all personally experienced or had a customer arrive at a location and the item they need, which shows in-stock online, is not there once they are ready to purchase. This is very frustrating and could easily leave a bad taste in their mouth if this continues to be an issue. People don’t have time to shop around anymore with the way things are going lately. They want in and out. One unhappy customer can lead to many lost sales and lower profits all around.


Tips For An Easier Inventory  

  1. If you don’t already have one in place, implement an automated business management system such as Acumatica. Acumatica is a complete cloud ERP solution that has built-in inventory management features that will improve customer service and overall profitability.  
  2. Pick a methodology and be consistent. Plan the counts. Are you going to do a yearly physical inventory of the entire warehouse? Are you going to do smaller cycle counts of high-moving parts? Use the A B C method. The choice is yours but stick with it. 


Use Your Inventory Management System to Complete the Task 

An inventory management system like Acumatica guides you through your physical inventory step-by-step; however, there are important manual steps that need to occur as well. 


  1. Freeze the inventory.
  2. Choose individuals to participate in the actual counting and have accountability of these people. This is an important job. We don’t want them to go rogue and not turn in everything or not do an actual count because that defeats the purpose. If needed, you can do this by having another person verify the counts or you can do an audit of a random selection of the counts. 
  3. Don’t take the counts as gospel. Sometimes an item could be in another location, and it is on a different count sheet. By doing diligent research of discrepancies, you will help alleviate some of these discrepancies and get a more accurate overall inventory.
  4. After you have completed the physical count, input the data.  
  5. You now get to see what the financial impact will be by preparing your adjustment. At this point, you might want the controller, CFO, or CEO to buy off on the adjustment to make sure everyone understands the impact on the financials, and they approve of them. You would then take the bump up or down in inventory dollars and unfreeze the inventory.
  6. Continue business as usual.


With Acumatica tools you can do a physical inventory count process quite easily while it flows through the system. Inventory is correct, your financials are accurate, and your customers are happy. 


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