If you cannot find the number of parts, finished goods, or products that your inventory system says you have, you are undoubtedly wasting your time looking for them. You, in turn, will also hold excess "just in case" inventory (thus raising your inventory carrying costs), delay customer orders, waste time in production and order fulfillment and generate unnecessary return processing costs.
The main reason why the numbers in your system and what you discover during a physical inventory sometimes do not match up is because of unrecorded inventory or inaccurate inventory transactions. It can be a box of inventory placed on the wrong shelf or forty pounds of steel fittings sent to manufacturing that were actually recorded as four pounds. A size four skirt that has been labeled incorrectly as a size six will generate a return, because the customer discovered that it was too small. When the product is returned into inventory, the receiver might just scan the bar code, updating the system with a phantom size six item. (This assumes that the packaging has not been destroyed, which in this case would be beneficial and most likely lead to discovery of the incorrect labeling). The panacea for this is accurate real-time inventory data.
There are two ways to track inventory. You can either do a periodic physical inventory count, which is usually an annual event, or you can implement a cycle count program.
This first chapter of Better Business Practices Series, explores the many benefits of cycle counting. Chief among them is the elimination of an annual physical count of your inventory. While cycle counting is the preferred inventory counting process, many companies still conduct annual counts. Acknowledging that many companies still conduct annual counts, this chapter focuses at the Better Business Practices for an annual physical inventory.