Physical Inventory

   Pros

• Get a reasonably accurate count, adequate for inventory financial reporting purposes (the accountants like it)
• Usually only performed on an annual (most common) or biannual basis
• Periodic inventories (usually monthly) can be productive for smaller facilities that warehouse less than 3,000 SKU’s
• Accounts for all physical locations in the warehouse, not just the locations showing a system inventory balance

   Cons

• Typically requires a lot of time and manpower
• Does not provide real-time inventory accuracy
• Does not promote inventory discrepancy investigation in a timely manner
• Often there are advance preparations such as tags and forms to pull together
• Actual counting requires freeing a large number of personnel for a long period of time in every inventory location
• Interruptions to operations results in capacity and customer service issues
• Typically, clerical staff enters hand-written information into the appropriate system which is prone to errors
• Physical inventories are rarely accurate

Cycle Count

   Pros

• Improved, real-time inventory accuracy
• Aids continuous improvement through timely root cause investigation of inventory discrepancies before they impact operations
• Reduces stock-outs and excessive inventory levels
• Promotes ABC inventory classification which results in high velocity, high value and critical items being counted more often
• Does not require operations to be interrupted to count

   Cons

• Typically requires periodic accuracy audits for accounting verification purposes, using objective sampling techniques
• Requires dedicated inventory control personnel in larger facilities
• Very difficult to manage without adequate technology

I hope these discussion points assist you in the decision making process. If you other ideas or thought, please feel free to comment on this post

By Jeff Waller

Waller & Associates, LLC

www.WallerAssoc.com

Jeff Waller, President