When it comes to counting physical inventory, there are two basic methods of recording the count and reconciling in use. The two methods apply to most legacy and modern ERP Business Software systems and may not apply to Warehouse Management Systems (WMS) using handheld devices. The two methods are inventory tags and inventory count sheets.
Count Tags vs. Count Sheets: What is the difference?
Tags start with inventory on the floor and then check the computer records against it. Tags are basically "Here is what we have. Go in and match up against what the computer shows." Count sheets start with the inventory records on file and then locate the items in the warehouse. "Here is what the computer shows, go out and count against what we have." Both methods aim to get an accurate count of the physical inventory and make adjustments where necessary.
Tag Method
Inventory Tags (Handwritten)
Inventory tags are often a one or two-part document with a stub that is sequentially numbered and available from large office supply companies. They are commonly available with tag numbers ranging from 0001 to 4999. For any number larger than 4999, you may want to rethink your counting strategy. Planning is recommended to confirm that you can obtain the required number of tags in the ranges needed before the count date. Also, Inventory tags must be manually written out in advance or on the day of the count, which is time-consuming and an excellent source of errors.
Inventory tags are placed with the inventory items to be counted. On the day of inventory count, the counters will move through the areas with count tags and record the items and quantities. Counters count the items in a designated area and tag each item. The small top stub part of the tag remains with the item counted, and the large tear-off part goes to the person recording and reconciling the count in the inventory management software. The purpose of the tag number is for easy reconciliation if a counter comes across the same item in a different location.
Inventory Tags (Computer Generated)
Most ERP Business Software systems allow users to create their tags for the inventory count. If you are using the tag method, this is by far the better way to go. By printing the tags in advance, you will eliminate all handwriting except for count information such as counter, quantity, and any other needed count date information. The tag number, SKU number, description, location, and Unit of Measure (UOM) are all pre-printed on the tag.
Computer-generated tags come in two formats: Dot Matrix and Laser. It may be challenging to find a dot matrix printer these days, but they are still available and used or reconditioned. Laser two-part forms can be expensive, but consider the cost, wasted time, and errors with manually hand-written tags above.
When to use tags?
A limited number of items to count.
The area is small.
Locations are not defined.
Locations are not accurate.
Software is limited.
Inventory is buried.
Inventory might be moved.
Counters are very familiar with items being counted.
Count Sheet Method
Inventory count sheets are often the better way to go. The computer system generates the count sheets, and we then count the inventory and compare it to the system records. Counters take the sheets, count the items, record what is counted, and then return the sheets with the information. Count sheets are often generated by bin location, aisle, rack, or other logical flow.
When To Use Count Sheets
A large number of items to count.
When the software is capable.
Locations are well-defined.
Locations are reasonably accurate.
Inventory is accessible.
Desire to show on-hand quantities.
Blind Counts?
When using system-generated count sheets, the question often arises of whether or not to show the existing quantities on hand to the counters. Please see our post Inventory Counts: Blind Count or Show Inventory on Hand.
Summary
In our Physical Inventory and Cycle Counting workshops, we teach best practices for warehouse organization and management. We aim to achieve the highest possible inventory accuracy while increasing overall count efficiency. The key to achieving this is preparation, organization, and training.
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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