Inventory Stock Take Perfection Part II

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Published October 31, 2017

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Since the beginning of retail, store owners have taken a regular assessment of their inventory to stock their shelves. It is a regular ritual played out year after year with differing success. 

In these early days, the store owner knew his/her inventory well. The owner was the procurement manager, sales manager, inventory control manager, and accounting manager. In playing these roles, the owner balanced the worth of the inventory with the true market value. There were no “unknown” items in their inventory. 

Early StoreThis intimate understanding of their inventory, positioned them to manage special pricing and make the right “deal” when the opportunity presented itself. They were empowered to reach to their customers and take the right action to balance customer satisfaction with profitability. 

Taking an accurate inventory is fundamental to all that the business does. Fundamental business automation relies on accurate information to drive the right buying and selling behavior. While businesses continue to invest in better tools, we continue to miss the simplest of activities that will drive expense reduction.


How strategic is your inventory count process? How accurate are the results delivered? Are you sure the numbers you are given are accurate?

All businesses set out to optimize their profit opportunities. Having a strong control of their costs is critical to managing profits. Outside of people, inventory is the second largest cost to all businesses.

Poor stock management results in higher overall costs. Expediting costs, both inbound and outbound to the customer, is the single most identifiable costs. Additional overtime, excessive line changes, and general higher payroll costs are often driven by a lack of supply predictability.

The best way for a business to drive bottom line performance is to get strong control of inventory. Executing strong controls requires the help of the entire business. It should not be viewed as a responsibility of the distribution operation only.

Total Business

Like the shop owner of yesteryear, the procurement team knows everything that has been purchased. Above managing the order flow, an effective procurement organization should intricately understand the products used and ensure assortment rationalization is completed. 

In planning inventory, procurement should be a critical member of the team to identify unknown or mislabeled parts. This will help ensure they are appropriately identified and accounted for. It will serve a greater purpose in helping to understand shipping concealments, substitutions, and other product issues which should be investigated and managed.

The Process

There are five key phases to effectively executing a robust inventory count. No single step should be missed to ensure the results appropriately express the actual inventory position.

  1. Planning
  2. Site Readiness
  3. Inventory Count
  4. Count Auditing
  5. Financial Management

Like most processes, effective execution does not happen by chance. The team must think through all phases of the process and prepare robust solutions to deal with the unexpected findings.

I. Planning

LincolnActivities the day of the actual physical count will be hectic and unpredictable. Spending time upfront to think through what to expect will help from being overwhelmed by them. 

Recognizing that the folks doing the count will center on warehouse workers focused usually on execution and productivity, inventory is not something they are used to doing.

Here are a few activities one should complete beforehand to help find issues during the actual count:

Similar Items

Many times, we sell items that look physically like other items. Without a description that highlights the differences, a quick physical review may not identify these differences. This can be critical in ensuring differences in an item’s cost is not lost.

Take the time to highlight these similarities. Define items that may be misidentified and watch for variances in these product “groups”. By knowing potential issues, you can screen results and immediately dispatch recounts to verify that the item counted was in fact as defined.

Highlight, based on Warehouse Management System (WMS) information, specific slots (bins or bays) where confusion may result. Make sure the counter is aware of items to pay special attention to the ensure the product counted is as defined.

High Value

A product’s value to the business is more than just the purchase price. Define those items which are critical to the business and flag for detailed review. Highlight to the team the need to get these items right during the count.

Factors to consider when defining a product’s value:

  • Profit Driver
  • Traffic Driver
  • Strategy Driver
  • High Cost

These are items which impact the overall performance of the business. Think through the concept of “high value” and make sure the team focuses on those items you are concerned with.

In defining these items, communicate with marketing, sales operations, and finance. Understand the components of your financial strategy to ensure the performance you are analyzing is indicative of these items performance. Assuming a critical item is in-stock, is a fundamental failure to effectively manage inventory and the impact it has on the overall business performance.

Part Information

Items are often called different things to different people. There are Stock Keeping Units (SKUs) which are internal part numbers, Distributor Part Numbers (SKUs from your Distributor), Manufacturing Part Numbers, and your internal sales number. With more than one possible number for the same part, the team may bump up any of these numbers during the count.

Plan for the team to find any one of these numbers. Think of the data collection effort when defining the part number to use during the count. Collect as much information as you can to facilitate the process.


During the count, the team will find many items that are not labeled. Unless a team is available to identify unknown items, they will quickly assign it to a similar item nearby. To plan for this, someone should be assigned with the data collection team that can quickly identify these items.

Plan to include purchasing in the stock take. Assign product experts for critical classes of products that can identify each item. By planning for this, you ensure that the counts provided support the business.

Prior Count Performance

It is a natural phenomenon that losses during a prior inventory count become an overage on the next. Be aware of these items and plan to audit them extensively during this count. Spend focused effort to understand how these items could be confused for each other.

Before the count, review shipping history for overages and shortages. Understand where a vendor may have shipped an alternative part and the team did not catch it. Take the time to determine if the miss-shipment is acceptable. If not, plan to accumulate the additional inventory in an isolated location in the warehouse for return to the vendor.

Make it an Event

Doing inventory can be a tedious process. To encourage involvement, find a way to make it an event. Plan for breaks where food and experiences are shared. Encourage team conversation to share:

  • Issues Experienced
  • Product Concerns
  • Process Questions
  • Initial Audit Learnings

Find a way to measure team progress and reward player types for their performance. Let the teams know that you are interested in their performance and they are appreciated for their efforts.

Many times, inventory count efforts happen over weekends or business down times. Being a part of these efforts inconveniences those involved. Take special effort to compensate for this by creating a relaxed team environment. Set an environment of inclusion and involvement.

By thinking through the issues you will encounter, you can build a solution into your approach. Further, if you need to “return” some items to a vendor, this is a great time to collect these items and segregate them for delivery.

II. Site Readiness

Getting the operation ready for an inventory count goes beyond physically straightening the site. You must plan for a count and ensure that there are no “book” transactions that impact the stock ledger (system on-hand) that would adversely affect the physical count. Take the time to “clean” the supply chain pipe to eliminate inbound and outbound transactions that could impact the system on-hand.

To have the site ready for an inventory count, things to consider include:

Purchase Order Clean-up

Clean upTo minimize the level of inventory needed to be counted, the business should drain the inbound purchase order flow. This is particularly an issue where you have vendor relationships that “assume” receipts. To eliminate the confusion of whether or not items are on your books, you should stop inbound flow of goods.

The manifestation of the approach would be to “lock down” the inbound docks and ensure that no items are in the building that are not on your books. Depending on the size of your operation, you should consider putting numbered truck seals on each door that can be inspected during the inventory count to ensure that nothing comes into or out of the building.

Consider cancelling orders greater than six months and re-issue them if the product is still needed. Review receipts to ensure you have not double received a purchase order. Clean-up potential book issues before the count starts, to ensure the value the team is comparing against is your best understanding of the truth.

Clean the Shipping Dock

Ensure all outbound orders are shipped before the yard is closed. Prepare for carriers and/or customers to pick up all orders leaving 12 hours between the close of the yard and the beginning of the inventory count. Plan for delays in a carrier and ensure all outbound loads are removed.

Any orders left unshipped will require a location identification created and a detail count performed. The typical nature of these orders is pick/pack in nature, inventorying these items will be slow and painful. Do not assume what is packed into those boxes is as requested. They must receive a detailed count like any other location.

Secure the Yard

Review all trailers on the yard and determine the disposition of the items contained. Clean out all trailers if possible either by shipping the items to their destination or putting them away within the building. Create a yard log with number truck seals and update, if the seal is broken.

This is the time to deal with the “orphaned” items stuck away in the yard. Take the stance that if you physically have it, you must count it. This will ensure that these items are dealt with and disposed of as needed. 

On the day of inventory count, physically lock the yard and do not allow any trucks to enter/leave the yard. Set-up a gate guard and log to ensure there is no activity into or out of the yard during the count. This log should be captured as part of the stock take work papers.

General Housekeeping

The most painful part of the process is the physical straightening of the site. Consolidate items, as much as possible. Label each box or item to facilitate the count. Ensure that all locations are clearly marked and that each location to be counted has a unique identification number. 

It is important to note that the facility will receive “help” from others in the business to help count parts. Many of those “helpers” are not as knowledgeable about the uniqueness of each part by looking at the item. Help the newly formed support team to be successful by labeling, controlling, and collecting similar items with the team that deals with it day in and day out.

Recognize that variances will be found. Ensure the building is labeled and signed to support the recounting that will be required. Ensure that pallets and locations are uniquely labeled in a way that makes them easy to find and recount. Allow space on the data collection forms to correct information (e.g. location, item, quantity, etc.) that need to be corrected.

Having a successful inventory count requires a clean, well organized site that helps the counters find each item and capture the count. Take the opportunity to clean the site floors and clean-out built-up “trash” that naturally accumulates during the year. 

Count Preparation

How you plan to capture the data is an important planning topic. Not only is the level of technology a conversation, but the method of the data collection must be discussed. If technology is deployed, make sure you have a back-up plan ready to go in the event the technology fails during inventory count. Make sure you plan for issues.

There are several count techniques:

  1. Manual Count

    Using the old school paper and pencil provides the greatest flexibility in approach

    and level of education to support the count. With these forms often being created on an Excel worksheet, the team has the greatest flexibility to sort and alter the instruction, order, allocation, etc. and can reprint on the fly.

    When using this approach, however, the stock taker must write concisely. 

    They should use a few simple techniques:

    1. Numbers

      We all write numbers a little differently. When written quickly there are a few numbers that often get confused., write neatly. See below chart for help on how to write numbers:

    2. Part Number

      NumbersPart number may contain dashes and blanks in the number. The team should use block (capital) letters for part number they cannot find so it can be researched. Cursive writing is very difficult to read and often discernable only by the writer.

    3. Scanner

      The new methodology deploys hand held scanners to scan the product bar code and the operator to enter the quantity. While this helps ensure that the part number is accurately captured, it does not ensure that a part number may not be scanned that is not on file. By doing the homework up front, these products can be matched without any further impact. The process will not eliminate the requirement to manually enter a part number. To complete this effort, there may be keying errors. The most used technique to overcoming this risk is to have the operator double enter the item’s number. Unfortunately, most operators who are savvy will find the copy and paste function to bypass this check.

      Setting up an area report that is automatically generated for hand keyed numbers that are immediately audited by a different counter is a better approach to this limitation. This puts another set of eyes on the item to ensure it was not entered improperly. Data collection foresight would plan for this this information to be sent to the auditor of the section in real time so they can execute behind the counter once entered.

      The big down side of this approach is that the operator must be trained on how to use the device. The device functionality must not impede the process. Recruiting tech savvy data collectors helps minimize this impact.

    4. Weight

      The prior methods are designed to capture individual item control. For items that are managed as a lot (e.g. nails, screws, liquids, etc.) other methods of data capture may be appropriate. Scales are often used to capture the weights of these lots to define the count of items.

      In preparation for a stock take, there are two critical tasks that must be completed:

      Scale Calibration

      Get all scales calibrated, no more than two before the inventory count. Try to complete the task as close to the count as possible, but leave some time in case an appointment is missed or the day’s activities require you to reschedule the appointment. Ensure that the values they provide are as accurate as possible. 

      Item Weight Verification

      Do not rely on vendor weight descriptions for your count. With production variabilities, you should take a sample of all items to be weighed and check their weight. This should be done within two weeks of the count because you want a representative sample of the items that will be in-stock at the time of the inventory.

      While using a weight approach minimizes the need to count each item, it comes with its own risks. Make sure you think through these risks and plan for their impact on the results.

      Once the counting technique and data captured is defined, the team can turn their attention to how the count will be controlled. The team should think through the nature of the count required for each area and assign teams to complete the tedious counts early, while they are fresh. One should plan for the easier large unit and bulk counts to be completed later in the day as teams become tired.

      Recognizing that a trained team is a successful team, make sure you take the time to develop the right materials. Simple instructions up front that help the taker understand the expected goal will help them make the right decisions on the fly to reach the desired outcome. Providing an understanding of why they are completing this effort will help guide the right behavior.

    5. Training

      While rules are good to help set the process, you must help provide the principles you are using so they can deal with the unknowns. Provide structure to the process, but do not restrain the team from completing their task. Help the team see the bigger picture and share knowledge with other teams. Keep a board of “things learned” during the inventory count so teams can review questions.

      If you have time, create a count video to show what to expect. This will help the team visualize their activities rather than merely read about it. Everyone learns differently, make sure your training materials take this into account. Create materials that help left and right brain people be equally successful.

      All critical collection instructions should be on the top of any manual data collection sheet provided. Simple reminders as the day goes along is a great way for questions to be raised. Use regular touch points to air confusion and concerns.


    Expect variances in the actual count as compared to the ledger. Make sure you have a dedicated team in place to audit your performance in real time. Ensure the process focuses on an accurate count and not just a first count. Make sure an audit function immediately kicks in once a variance is found.

    Count Tags

    The night before the inventory count, walk the site and ensure all locations are appropriately defined. Place a count tag on all areas that can be used to reference products. Make sure the site is ready for new people to enter the area that are not familiar with the space.

    III. Inventory Count

    Greet the team with excitement and get them ready to go. Set out the day’s schedule to set expectations. Provide regular check-ins of performance and review performance quickly to determine retraining needs. 

    Teams should perform a blind count. This ensures the true physical count amount in front of them, rather than accepting a value given to them. As the team gets tired, they will look for ways to short cut the process. 

    The actual stock take will require:

    Site Control

    No movement into or out of the facility should be allowed during this time. Make sure all dock doors are locked, all gates locked, and all trailers secured. Numbered tags should be deployed and a log created to ensure control is created.

    Any tags that are broken during the inventory count need to be logged. A new tag should be attached once completed. This central log must be managed and controlled during the inventory. An inventory marshal should review all changes and validate control.

    Any unlogged alterations should be reviewed before releasing the inventory. This control sheet must be captured and logged with the official work papers.

    Data Collection

    Define the role of each player on the team:

    1. Counters

      These associates will perform the actual review and counting of the product. They need to understand the unit for each item they are counting. Not every item is counted as an each. There are times when an item is packed in a blister pack (e.g. AAA batteries) or an inner pack (e.g. Box of six eaches) where the items should be counted in that unit of measure.

      Teams should be provided a calculator to compute multiplications. For example, if the count required is for each individual item and they find three cases of twenty-four, you do not want them adding them up. If they have a calculator, they will quickly know this is 72 units.

      Teams should be trained on the types of products they will count. They should look for visual differences between parts. While they will want to complete the count as quickly as possible, they must be thorough.

      Any cracked case should receive a detailed count. If the carton seal is broken, you should assume an item could have been removed. Any inner pack should be reviewed to ensure it was not cracked.

    2. Auditor

      Each team should have an audit function imbedded within the team. Counts should be randomly audited immediately after counting to verify the accuracy of all counters. 

    3. Product Expert

      A team of product experts should be available to all teams to answer product specific questions. Counters should not “guess” at the products, but know each item.

    4. Warehouse Worker

      In a warehouse situation where racking is used, the team will need help pulling down all level two and above pallets for review. The facility must make these resources available to the team. 

      All pallets should be counted on ground level with the original location noted. No data collection effort should introduce a safety hazard. Once counted, the pallet should be returned to its original position. If a real-time reconciliation can be completed, now is the best time to check the slot accuracy. 

      Teams should turn in their data at least every hour. In the first 30 minutes, data should be collected. At the end of the first hour, a meeting should be held to discuss what was found and answer any questions from the team.

    Data Entry

    For manually entered information, the data entry process must be fast and accurate. A team of data entry people should be available to enter all information provided. A data entry auditor should be positioned to review the data entered.

    Critical information to capture during the data entry process:

    • Tag ID
    • Location ID
    • Data Collection person
    • Item Number
    • Quantity

    The means of entry should be constructed to enter the data in the same order that the data is collected. Teams should check or highlight each line entered to ensure they do no double enter a line.

    Variance Review

    With data results arriving, the process will move from the collection phase to the audit and verification phase. Planned well, these two efforts can occur simultaneously. If you start the audit process at the beginning, the data collection teams will see that their results are being managed and they will be more diligent in counting their items.

    It is important to note that an overage is just as important as an underage. Teams should be as quick to understand the overage amount as a missing amount. Known as absolute variance, teams need to ensure that any difference from the stock ledger is investigated.

    Critical activities during this phase include:

    Part Researcher

    Teams will begin to provide results for items that are not in the stock ledger. The central team should research these items and highlight where parts may have been substituted during delivery.

    Unit of Measure Issues

    Teams should begin to see where counts do not match the unit of measure they were supposed to count. Look at variances by item for insight into this issue. Once discovered, make teams aware of the issue and have them recount the item.


    Have the team look at the products next to the product they inventoried. For open cases, make sure product was not accidently put on the wrong pallet. Have the team review the entire pallet where concerned.

    The inventory control team should have a defined clear strategy on how to audit the results. 

    The strategy should include the following elements:

    • Dollar Variance
    • Unit Variance
    • Business Critical Item Variance

    There may be a core set of items that drive your customers. As a result, these items may be considered critically important to your business. These items should be identified before the inventory and a special flag noted to review the results of these items. Variance thresholds on these parts may be tighter than other similar parts because of their importance to the business. The level of auditing will be determined on the variances realized and the time available to resolve these variances.

    Closing the Inventory

    As you finalize the effort, make sure to walk the entire facility. Ensure that all areas of the site (e.g. closed rooms, unused areas, etc.) have been counted. Look closely at the locks and site controls to ensure nothing has changed or been altered during the process.

    Once all locations are counted for the first time, look at the results. Refocus attention to areas of concern. Look for trends by counter. If a counter trend is identified, audit their areas as much as possible.

    Look for unit of measure issues. Large variances (positive or negative) are often caused using the wrong unit of measure. Review these parts in all areas as much as possible.

    As the inventory count begins to wind down, summarize the results in a way that senior management can understand the results. Provide an overall summary by type of product, area of the facility, and by vendor. Highlight your largest variances for each parameter and create an action plan to investigate.

    Over the next few weeks work with the operations team to help put in place processes to catch missing items.

    Ensure that the procurement organization is aware of the results, so they can begin to negotiate with your vendors differently. Variances in items should be investigated as incorrect or alternate product shipments. Work with vendors to identify ways to make similar products look different in the warehouse.

    The business should set-up a cycle count program to constantly manage items and classes that are out of the acceptable variance range. These items should be counted as needed to get the business confident that it is under control. If issues remain, the team should partner to more aggressively and proactively resolve process gaps.


    Providing a high level of customer service is based on having data that helps the entire business fulfill their role and meet the needs as defined. Without sound underlying data, all functions will perform marginally at best. Inventory accuracy is the cornerstone for determining what is needed and what can be sold.

    Since the advent of time, every business has worked to understand the inventory they own and the inventory they need. The knowledge of a single proprietor who managed all processes is now dispersed to process experts hired to execute their function seamlessly. Each relies on the execution of the other to deliver the best overall results.

    Setting up a robust plan will maximize the effort the day of the count. Teams should do all they can while physically holding an item, to decipher what it is and make sure it is counted correctly. By engaging a larger, more knowledgeable, more skilled team their efforts can deliver better results.

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