How To Do Inventory

Inventory is a collection of goods that a business has for sale and/or the materials used to produce goods intended for sale.

Inventory management is the process of ordering, storing, and using your company’s inventory, and is essential when organizing and tracking your company’s goods so that you always have the right products and the correct quantity at appropriate times.

How To Do Inventory:

1. Ensure that your forecasting is accurate.

When calculating your anticipated sales figures, your projections must be based on historical sales figures, market trends, competitors' pricing, growth predictions, and the current economic conditions.

2. Engage in the First In, First Out (FIFO) approach for perishable items.

All goods must be filtered out in the same chronological order as they had entered the inventory cycle, especially perishable products with short shelf lives.

3. Engage in the Last In, First Out (LIFO) approach for non-perishable items.

For non-perishable products, you can use the Last In, First Out (LIFO) approach as you don’t need to rotate batches and rearrange your storeroom or warehouse.

4. Identify stock with a low-turn pattern.

Stock that hasn’t been selling for more than six months is an indicator that you should stop stocking that item. Consider filtering out the redundant stock through promotions as the freed-up space could be used for in-demand items.

5. Conduct physical inventory counts.

It is a great idea to manually audit your stock by conducting physical counts to ensure that the actual product counts match those in your system. You can also conduct spot-checks on random items if you find regular discrepancies.

6. Real-time stock tracking.

Tracking stock levels constantly helps you to manage the demand for goods. It is recommended to use inventory software which automatically generates tracking reports in real-time so that you can monitor stock levels and identify spikes in demand for specific goods.

7. Ensure quick equipment repair times.

Equipment failure can prove to be costly if it hinders the production of in-demand items. You should regularly monitor your equipment and understand its life cycle to ensure that proper maintenance and necessary repairs are attended to timeously. You can check out our guide on great maintenance management software here.

8. Quality control checks.

It is vital to implement quality control measures to ensure that your goods have maintained their intended standards, are not damaged, are labeled correctly, and have not been rendered outdated or unusable.

9. Employ a stock controller.

A stock controller can help your business by processing orders, receiving materials and goods, and physically checking that orders match. This can avoid costly losses and ensure that stock levels are appropriately managed.

10. Categorize your goods.

Grouping your products in order of priority or higher-value goods can be helpful when deciding how to manage your stock levels, and identifying wasteful expenditure on the redundant or slow-moving stock.

11. Consider drop shipping methods.

Dropshipping is a popular way for businesses to sell products that they don’t physically have in stock. Once an order is placed for a product, the business purchases that product from a third party who is then responsible for shipping that product to the customer. Business is usually conducted online with customers.

Inventory Management Classifications.

Inventory management can be classified as either Retail or Wholesale.

Retail inventory management refers to business-to-consumer (B2C) sales and can be further classified as online retail where goods are sold online and offline retail where goods are sold through a brick-and-mortar store.

Wholesale inventory management refers to business-to-business (B2B) sales.

Different Types of Inventory:

Physical inventory can be classified under one of the following four categories:

Raw Materials

These refer to the materials used to produce goods and can be purchased from a third party or manufactured in-house.

Works-in-progress Inventory

These refer to items that are in the production process but are not yet complete for the purpose of selling.

Finished Goods

These refer to items that are already manufactured and are ready to be sold.

Operations, Repair and Maintenance Goods

These refer to items that are used to manufacture goods for sale and may not necessarily form a part of the finished product.

Performing Manual Inventory Counts:

It is necessary to perform manual inventory counts periodically to ensure that your actual stock count matches the stock count on your system. The process is as follows:

1. Obtain count tags.

You will need count tags that are numbered sequentially in order to track items in the counting process.

2. Inspect all inventory.

All inventory must be inspected prior to the manual count to ensure that they are in a condition to be counted e.g. some items may be dismantled and will need to be assembled in order to be counted correctly.

3. Conduct an inventory pre-count.

In order to make the manual count easier, you can conduct a pre-count to bundle up items that can be packaged. This is particularly useful when you have small items of large quantities that are individually packed. A good example is having nails in packets of 10 that can be bundled into lots of 1000 and stored in a box to make counting easier.

4. Complete all data entries.

Ensure that all warehouse data entry transactions are completed before the counting process begins. This will include all goods dispatched and received, and all transfers.

5. Notify all storage locations.

If you have multiple storage locations, they should be notified in order for them to count the necessary inventory and forward that information to you, as of the court date.

6. Temporarily stop warehouse activities.

It is important to stop all warehouse operations for the duration of the count in order to get accurate figures. This step is critical before the actual counting begins.

7. Create count teams.

Create teams that will count, mark tags, and double-check the counts in order to obtain reliable information from the manual count. These teams will be issued with specific tags and work in dedicated count areas.

8. Verify tags.

Once the count teams have completed their duties, an inventory clerk needs to verify the count tags that have been returned.

9. Compare tag counts to inventory software.

All tag counts must be compared to the counts on your system to ensure that the actual stock on hand matches the figures on your system. It is a good idea to compile a report with all the manually entered data and then compares that to your system-generated reports. Any unusual or conflicting data must be investigated to resolve discrepancies with the counting process.