Purpose of a Physical Inventory


A physical inventory is the process of a business physically inspecting and counting every item on the shelves and in the warehouse or storage rooms. Too many times a company can lose track of what inventory it does have, which is a dangerous proposition. There are a variety of reasons to conduct a regular physical inventory count, ranging from insurance or accounting requirements to assessing the value of loss through theft or other types of damage.

Customer Service

  • It might seem like a roundabout way of thinking, but conducting a regular inventory is good for customer service, which is an idea every employee should be able to get behind. Think of this scenario. An employee in the showroom responds to a customer's request for a widget. The showroom shelf is empty, so he goes to the computer and looks at the warehouse inventory count. The warehouse says there are three widgets in stock, so he reassures the customer that one will be there shortly. But then word comes from the warehouse. No widgets. Depending on how badly he wanted the widget, you're left with an angry, disillusioned customer who probably won't be back.

Effective Ordering

  • A computer can be an amazing tool when it comes to generating different reports based upon inventory. It can tell you what is moving fast and what's not selling. It can estimate how much you need to keep in stock, based on past usage patterns, and tell you when it's time to order again. But your computer becomes the most expensive paper weight in history if it's creating reports based on bad inventory numbers. It' s worth taking a long weekend every now and then to zero out everything and make sure the computer's idea of reality matches what's actually on the shelves.

Tax Purposes

  • For any company that carries an inventory, the Internal Revenue Service wants to know exactly how much stock there is at the end of each calendar year. That's why "year-end blowout sales" are so prevalent. The more inventory a business sells before Jan. 1, the less there is to count.

Final Tips

  • A flawed inventory is at least as bad as no inventory at all. Make a plan. Break the warehouse down into a grid pattern and organize your counting. Try to schedule the count so as to occur at a time when nothing is coming in or going out, preferably after business hours or on the weekend. If you have to pay employees overtime to get it done quickly, so be it.

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