Stockpit

A physical inventory in stock management is an essential activity in managing a business's operations. It is a systematic process of counting, verifying, and documenting the goods, raw materials, products in process, and finished goods that the company owns at any given time.

The main purpose of inventory is to ensure that inventory records actually match the physical inventory that is available.

In addition to being an asset for a good stock management, inventory is a legal obligation! In fact, in accordance with Article L. 123-12 of the French Commercial Code, any natural or legal person having the status of merchant” must verify by inventory, at least once every twelve months, the existence and value of the active and passive elements of the company's assets. ”.

Don't forget: In the event of a time lag between the inventory date and the end of the accounting year, it is essential to identify the items moved during this period, whether by their location, the receipt and exit vouchers, or the marking of the items received.

Moreover, in addition to its mandatory legal aspect, taking inventory offers many advantages!

In fact, it will offer you an overview of your business. So, here are some advantages of a well-completed inventory:

Finding out if you have suffered loss or theft, or if you are storing expired/damaged products
Knowing the exact life cycle of your products (and therefore finding out if there are dormant stocks!)
Reducing the costs associated with overstocking or stock-out
Having a better view of your real stock to help you make informed decisions
Achieving better competitiveness through greater product availability and shorter delivery times

… and many more.

But how do you do an inventory?

The stock inventory is an operation that includes 2 elements:

The counting items of the company’s item;
followed by their valuation at the end of the accounting year.

‍

Counting items

With regard to counting items, there are various steps that should not be overlooked:

Scheduling

This is essential because there are several elements to consider:

Facilitating the identification of items in advance for future counting (cleaning, storage etc...)
Remembering to take into account all storage locations, without exception (So be sure to count all products, whether they are in store, in the company or stored in unusual places.)
Ensuring to plan the operators who will be entrusted with taking inventory on D-Day.
Choosing the right time: because at that moment you will have to suspend all stock movements. And to minimize the suspension of activity, two solutions are possible: Either mobilize all the staff, or take inventory outside of business hours.
Choosing the methodology: paper inventory sheet, bar code reader or even with inventory software. A strict methodology that is well explained to the people taking inventory is essential to avoid mistakes such as double-counting, oversights etc...

Physical inventory

And yes, inventory must be taken manually!

This is why it is crucial to train your staff properly so that they are effective in minimizing the suspension of stock movements. You can use temporary workers from outside the company, this will guarantee you more partiality.

Also, designating teams of two will allow you to be faster and will reduce the number of errors.

Inventory sheet

The inventory sheet should be distributed to employees or external operators who are taking inventory. This sheet should include additional information to ensure documentation is as accurate as possible.

Remember to date and sign each sheet at the end of the physical count.

Below is an example of information to include in your inventory sheet:

‍

Importance of physical inventory verification

This verification is essential, in fact it consists in ensuring the correspondence between the results obtained during the count with those recorded in the company's register or computer system at a specific time.

To be carried out in teams of two at least.

Regularization

Once the counting is complete and verified, you will then have to regularize your numbers on your inventory management software.

‍

Evaluation of the articles

Valuation at the end of the financial year can be carried out in many different ways, but first of all: what is it for?

This assessment will make it possible to optimize your company's supplies and orders. For a commercial business, this involves determining the purchase cost. On the other hand, for a production company, it is a question of identifying the cost of production.

The valuation of inventory is a crucial step for the prosperity of your business, find out more: https://www.erplain.com/en/blog-en/inventory-valuation-methods

For example, there are two ways to assess inventory costs:

The weighted average unit cost (WAC) method : This allows you to calculate the average unit cost of a product at each entry into stock or at the end of the period.

WAC = [Initial Stock Value + Inbound Value — Outlet Value]/[Initial Stock Quantities + Inbound Quantities — Outbound Quantities]

The FIFO method

The FIFO method is a widespread technique for valuing stocks. It is based on the principle that the first products purchased or manufactured are the first to be sold or consumed.

‍

‍

The different types of inventory

Businesses have the freedom to choose how often they want to take inventory of their stocks, here are 4 types of inventory :

Annual inventory : carried out at least once a year to comply with legal obligations.
Periodic inventory : carried out at regular intervals, such as every quarter or semester, to check and adjust stock levels during the year.
Rotating inventory : or cyclical inventory, consists of counting and checking different sections of inventory at various times throughout the year, without interrupting operations.
Permanent inventory : allows constant and real-time visibility of commodity flows and inventory management, often with the help of software solutions that calculate product inflows and outflows.

‍

It is important to remember that without a permanent inventory, the physical inventory must be taken at the end of the accounting year. With a reliable permanent inventory, the company can do it at another date or carry out rotating inventories.

Why choose inventory management software?

To improve the efficiency of the process, the ideal thing is to opt for inventory management software!

Some of these software programs can automatically calculate the valuation of your stocks (Find out more: https://www.erplain.com/en/blog-en/inventory-valuation-methods ), in particular via the WAC method. These tools are also valuable for getting real-time visibility of your stocks, including those in progress.

However, these solutions are not a complete replacement for manual counting, as discrepancies can always occur. However, software is an essential ally to ensure optimal management of your stocks throughout the year, thus guaranteeing efficient commercial activity!

‍

Barcode scanners: invaluable allies

Barcodes are more accurate than a human eye, so you can optimize your inventory as much as possible. Using barcode scanners will save you time thanks to their ability to read data quickly and reliably.

But how does it work? A barcode scanner is used to scan a product's barcode label. After scanning the label, the reader transforms the data read into characters. This allows the person in charge of the inventory to consult the product data as if it had been entered manually on the computer.

Using a barcode reader in conjunction with stock management software will not only simplify your stock management, but also reduce the number of human errors.

‍