Inventory Counts: Blind Counts or Show Quantity On Hand?

Above: Inventory counts should always be done with two counters.

When preparing for inventory counts during our physical and cycle-counting inventory workshops and onsite training sessions, one question often arises. "Do we show the on-hand inventory quantities on the worksheets or mobile devices used for counting?" The answer is always, "It depends."

There are two different schools of thought on this question, with proponents and critics on both sides. There is no correct answer, only preferences. However, all modern Enterprise Resource Planning (ERP) software systems allow users to choose this reason. Inventory counting is a non-value-added activity, and the fundamental objective is to verify the physical inventory against the records stored in the computer system. There is no option if you use handwritten count tags instead of computer-generated count sheets. See Count Tags vs. Count sheets.

This post will address concerns about allowing the counters to know the on-hand inventory balance when performing physical or cycle counts.

Blind Counts

Listing items in your count selection without revealing the amount on hand is known as a blind count. A blind count contains the item and location information but does not show the calculated, or frozen inventory, at the time of the count.

This approach seems to make sense at the surface, verifying computer inventory records by counting the items. But, unfortunately, the blind count assumes upfront that the counters will be less than trustworthy and not resist the temptation to enter the quantities they see if they are available. The count organizer then compares the reported amounts against the system records and investigates any discrepancies.

The counters must count the items to verify the quantity, which is the purpose of the count. Since there is no reference to the amount that is supposed to be present, there is no other choice than to count the inventory.

However, the counters do not know what the inventory quantity is supposed to be, so what you see is what you get. In other words, there is nothing to verify against. There is no urge to locate additional materials if the count is short or no immediate recount if the count is high. The counters would then take a correct inventory record and make it incorrect.

One of the largest sources of error in counting is Unit of Measure (UOM) errors. by not having quantities listed on the count sheets, the UOM counting errors tend to increase.

Showing Counters Quantity on Hand

The real purpose of inventory counts is not to count but to validate that computer records are accurate and in agreement with the physical quantities for financial and operational purposes. If we show the counters what the computer records show, their job is to validate those records, and then we make adjustments.

By showing the quantity on hand, the counters can understand what the inventory should be. More diligent counters may recall items stored in other locations and will not give up until all of the items are located. In addition, counters will check the shipping and receiving departments and production floor to find additional items.

However, there may be the temptation to perform an eyeball assessment. As a result, items that are difficult to count, such as the low-value barrel of bolts, may not get adequately counted. Mis-counted items may not have too much of an effect on inventory value, but production stops if you run out.

Summary

In our Physical Inventory and Cycle Counting workshops, we teach our clients to perform counts with teams of two counters each. One person counts, and the other person records and verifies the count. The two-person teams switch positions frequently, and this also helps with moving materials. With two-person count teams, there is a lower probability of conspiring to falsify count records. To show or not to show remains a preference. We have witnessed it working either way.

If you need any help with your counting strategy, don't hesitate to contact us.

Roger Pujol is a business improvement consultant and founder of Champion Business Solutions, LLC. He speaks and writes about encounters helping small to medium-sized businesses (SMBs) improve their business operations.

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