Northeast HVAC News Guest Column
Tips for a Successful
Annual Inventory Count
By Jason Bader Managing Partner –
that time of year again. The leaves have turned. The NFL is in
full swing. The political season has come to a close. And, the
dreaded annual inventory count is on the horizon. During my
distribution career, I was involved in no less than twenty of
these events. Let me tell you, they were not something to look
forward to. Several hapless souls would trudge in to the
warehouse on Saturday morning ready to spend the day sifting
through our wares. We would entice them with coffee, orange
juice and donuts, the official snack food of inventory counting.
We would “invite” people from the clerical staff to join in the
merriment. Wouldn’t want to make them feel left out. To compound
the fun, we would invite the offspring of our employees and a
few manufacturers reps to round out the crew. Is it any wonder
that certain employees grandmothers conveniently “passed away”
the weekend of the count?
The challenge of an inventory count is that everyone really
needs to know how to count and what they are counting. It may
seem like I am picking on my co-worker’s ability to count, but I
am referring to common counting errors that occur because of
package sizes. If five blades come in the package, do we count
it as 1 or 5? Unfortunately, the teenage son of the accounts
payable manager is probably not going to know the answer. This
is why I believe that the inventory in the system on Friday is
probably more accurate than what we have on record after the
Since many of us are forced to go through the annual counting
ritual because of an outside party, I would like offer some
suggestions on how to make it better. These are observations
based on participating and running so many of these events.
Clean the warehouse. Cleanliness is next to godliness in
wholesale distribution. When I go visit a distributors
warehouse, I can usually get a sense of the inventory accuracy
by whether the place is organized. If I see boxes in the aisles,
items tucked in the corners and cobwebs on the broom handle, I
know that these folks are probably not paying much attention to
accuracy. The folks in customer service probably share my
opinion and don’t have a whole lot of faith in the inventory
numbers on the screen.
Do some counting before the event. Over the years I have seen
this attempted several time, but unfortunately it tends to
create confusion on the day of the event. Some distributors will
try to count a particular product line or category. For me, it
was broken boxes of fasteners that needed to be weighed out.
Invariably, we would try to count one of our faster moving items
and the count would change before the event. This leads to a
duplication of counting effort.
The best way to count ahead of the event is to pick off the
slower moving items. Run a hits ranking and try to count the
bottom 25% of the list ahead of time. By their very nature,
these items will rarely move within the next 6 weeks. Have your
material handling team count the items. Identify the counted
items with a large fluorescent sticker containing the quantity
found. You will most likely have to enter the count during the
day of the event or the system will trigger a recount because
nothing was entered.
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Freeze the business.
On the evening before the event, you need to stop doing business.
This may sound silly, but I have had to chase more than one salesman
off the system while the count was going on. It is a bad idea to
have inventory moving while you are making a physical count. Run an
open transfer report. What items have not made it to their final
destination? Make sure that the inventory is allocated to the proper
Make sure that printed pick tickets are pulled off the shelf and
staged. If you leave inventory on the shelf you will trigger a
discrepancy. This will force the count to drag out while the problem
is corrected. If an order does not need to be picked until a later
date, make sure to enter it as a future order. The system will
handle inventory allocation differently and not screw up the count.
If you have received inventory into the system, get it on the shelf.
Any inventory that has not be entered into the system must be
clearly identified with “DO NOT COUNT” signage. According to the
system, it hasn’t hit our dock.
Create the count teams ahead of time. Do not leave this up to your
employees. Invariably, inexperienced people will wind up together.
You really want an experienced person with a person who doesn’t
regularly touch the inventory. Make sure that everyone knows the
role they play in the team. In order to get the best count, the
experienced person should be counting the items while the rookie
does the recording. Too often, the rookie is sent up the pallet
rack. This is where we run into unit of measure and packaging
problems. By having the sales people combing over our stocking
items, perhaps they will be reminded of the breadth of product we
Count shelf to sheet. Too often I see people looking down at the
count sheet and calling out a part number. The seeker goes to find
the item and give the count. This can cause us to skip around on the
shelf and miss things that fit in the cracks. By counting shelf to
sheet, the counter is directing the team. Look at the shelf, count
the item and find it on the sheet. By using this method, we add an
element of discovery. Over the course of the year, non-stock items
magically appear on the shelf. When a customer decides not to take
an item we have bought for them, we should return it directly to the
supplier. Unfortunately, we tend to be really poor at returning
non-stock items. It is much easier to shoehorn it into the shelves
close to similar items. If the non-stock item is not entered into
the system, or staged in a return area, we have no chance of getting
our money out.
Run the variance by units. Many distributors set their acceptable
variance by dollars. Anything outside an acceptable dollar variance
will trigger a recount of that item. This is great if you are trying
to figure out how much cash you have in the warehouse. It does
nothing to improve the customer service aspect of your inventory
I can remember looking at a supplier line after a count. We were
only off by $200 on the whole line. When we had about $40,000
invested in the line, a $200 variance looked pretty good. Most
people would say that our counts were really accurate. As I looked
at a variance report by units, it read like a Coney Island roller
coaster. We increased the items on some and decreased on others. The
dollars balanced out, but the unit counts were all over the place.
While we were busy patting ourselves on the back, our customer
service people knew what was up. They still couldn’t trust the
These are just a few suggestions based on my experience. There are
countless more tips and tricks that you all have come across. I
would love to hear them. The annual count has been a distribution
staple for many years. It is wrought with failure and leads to
further inefficiency. In lieu of a solid cycle counting program, the
counting event is a necessary evil. With a clearly defined plan and
a little organization ahead of time, it can be a little less painful
that the one last year. Good luck.