PHYSICAL INVENTORY

Warehouse Physical Inventory Counts

Even when operations are running smoothly and processes are working properly, an annual physical inventory count can help reconcile inventory records and provide insight into where problems may exist. When using a 3PL, a physical count can help provide an objective analysis of your inventory.

Physical inventory counts can be performed under an operational shutdown or performed during live operations.

Care must be taken when performing a physical count while the facility is operating, as inventory movement can lead to inaccuracies during the physical count. Both systematic and procedural options should be considered when performing a physical count during warehouse operational periods.

When a physical count is performed during an operational shutdown, the count will be highly time constrained. Advance planning between the third party inventory provider and the warehouse team is of utmost importance. All timeline risks must be evaluated with solutions identified in advance.

Questions to ask when considering a Physical Inventory

Is a wall-to-wall count the right solution to the situation?

A physical inventory count is not a “one size fits all” solution. If you have a facility that is over a million square feet, over 100,000 locations, and have several millions of dollars in inventory, a PI may not be the route you want to go. But, an inventory consultation may be a better option! 

If a Physical Inventory is the correct solution, how do I complete it?

In our experience there are three ways to complete a physical count. However, just be cognizant of the pros and cons to all three options.

Complete the full physical using in-house resources.

This a route that many facilities choose to utilize, and for good reason. By using existing resources to complete the count, the business doesn’t incur the additional cost of bringing in a 3rd party vendor. While there is an initial cost savings to the company, there are two cons that may not immediately present during the count. 

First, you are utilizing resources where this activity falls out of the scope of their day-to-day job. Now, saying the phrase “that’s not my job” on our team, means that you no long have a job on our team. But, in this situation, you can’t discount human nature, and one would have question the accuracy of these counts. Bad data equals no value. 

Second, in many cases, a physical count will fall out of scope for the facility as a whole. Since the core competency of the business is producing or shipping things (or both), accurately and efficiently completing a PI is not something leadership has a breadth of knowledge or experience with. This lack of process, technology, and experience can lead to poor results, and may ultimately cost the business more in the long run.

Bring in a 3rd party company.

The second solution is to interview and choose an experience 3rd party inventory company. How do you choose the right one? well, you pick Monarch of course! You should ask about process and be comfortable understanding it at a high level. Speaking strictly from my own experience, we have honed in on a physical inventory procedure process over the last few years that we have been able to hack with technology. This combination has allowed us to count and verify results with a high degree of efficiency, and more importantly, accuracy. The obvious downside to bringing in a 3rd part is the additional cost. That may be true initially, but I would contend that if the data is solid, the overall value will be greater, and the positive impact to the operation should diminish the capital outlay. 

A hybrid between using in-house resources and bringing in a 3rd party company.

In some cases, it has made sense to utilize the labor force of the facility, while leadership from a 3rd party inventory company comes in to assist. A benefit of this solution is that the facility gains access to the process, technology, and experience of the inventory firm, all while minimizing the cost of the project as much as possible. There are some risks involved with this solution as well. Will the facility resources be able to get trained quickly on the technology? Will the inventory company folks integrate well with the facility resources, creating a productive, collaborative working relationship? While there are some cost saving in this model, it may be wiped away is those two questions are not handled well.  

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