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Physical Inventory vs Cycle Count

Raise your hand if you enjoy spending a weekend counting during an annual physical inventory. I’m confident we would all prefer to spend time with our families. Conducting a physical inventory involves a great deal of planning to ensure the necessary resources are available. There is also the consideration of additional travel expenses, overtime, loss of business if closing for any period of time and of course the food. Which is by far the the highlight of the weekend!

Then why do companies continue with this practice? Many assume this is a bank requirement. Although the banks want to protect their business interest and require the inventory valuation to be accurate, they are aware of the inaccuracies that result from an annual count. Ninety percent of the people involved in the count are not inventory control staff and end up making product and quantity errors that take weeks or months to correct after the count is finished. Most banks welcome the idea of doing it smarter with tighter controls and helping their clients be more profitable.

Rather than assuming the bank requires a PI or asking if a cycle count program will satisfy their requirements, be bold! Propose a solution documenting details of a comprehensive program that will ensure the accuracy of your inventory and protect their business interest.

Proper documentation should include the following:

  • Complete program overview

  • Goals and count frequency

  • Parameters and setup details of your inventory control system.

  • Detailed procedures and controls

  • Count and reconciliation process

  • Analytics to audit count accuracy

Why wait to make this change?

We are only a month and half into into the year. With proper execution it is certainly possible to satisfy the banks requirement to ensure your inventory is counted at least once this year. The worst thing that could happen is the bank requires modification to your proposal or requires at least one year of execution before final approval.

Progress demands change!



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