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What is Inventory Counting & How to Do it for your eCommerce Business?

Debarpita Sen

Specialist - Content Marketing @ Shiprocket

July 7, 2020

6 min read

Inventory counting forms a crucial aspect of managing your order fulfillment process. As an eCommerce business owner, you need to have clear visibility of your stock in hand. This is where inventory counting plays its role. In this article, we will dive deep into the concept of inventory counting and how you must do it for your eCommerce business to run smoothly.

What is Inventory Counting?

Inventory counting is the method of monitoring what is in stock by taking an actual count of all the products. This is a thoroughly coordinated process, which includes separating, counting items, and recording the results. The purpose of inventory counting is to determine the actual inventory in stock. eCommerce businesses should regularly determine what is in their warehouses with the help of the right warehouse management system. Taking an inventory count enables a company to clearly see what stock and assets it has, and how to locate these fast.

It also determines whether the inventory you thought you had is correct. It is not uncommon for the actual inventory to not correspond to the book balances.

What is the Purpose of Inventory Counting?

Track Inventory

Inventory counting enables you to overview all your sales channels and stay up-to-date on how much stock you have and where it is located, in case you have multiple warehouse locations.

Improve Shipping

With proper inventory counting in place, you will know if you’re ever out of stock with a particular product. Therefore, you will not keep your customers waiting for that product, and will be able to mention it beforehand to them. On the other hand, you will know if that item is available in any separate warehouse and ship it to customers from that particular location.

One of the best ways to improve your shipping is by tying up with a third-party fulfillment provider such as Shiprocket Fulfillment. With Shiprocket Fulfillment, which is an end-to-end warehousing and order fulfillment solution, you can be assured to have a 99.9% inventory accuracy performed by experts at our warehouse.

Control Costs

You can work out which stock is doing well and which products aren’t worth ordering or selling anymore if they’re gathering dust.

Planning & Forecasting

The software can be used to analyze data trends from well-performing stocks. Being able to predict what will happen means you can plan better.

How Often you Should Count your Inventory?

When evaluating your inventory process, you should decide how often you need to carry out an inventory count and which type is the right one. The exact regularity of inventory counting varies from one company to another, with some companies choosing monthly inventory counts, and some opting for once a year. 

This all depends on the company’s inventory turnover and its success in the past when it comes to inventory numbers being accurate without a full audit being required. Companies that process fewer orders regularly don’t need to carry out inspections as frequently. More prominent companies typically opt for fully automated inventory systems. Therefore they don’t need to carry out manually inventory counting.

Full counts should be carried out at the end of the financial year, although your accountant might recommend you do one at your mid-financial-year point. Other recommended times are before you sell your business and after hectic periods such as holiday seasons.

Cycle counting

As long as you have a well-computerized inventory system, the cycle counting system can save you money and increase the accuracy of the count. Many business owners choose this method since annual physical inventories are a lot more complicated and therefore come with a higher chance of errors being made.

Because the cycle counting method is carried out by software, it makes sense for you to do a few random spot checks throughout the year to ensure the software is giving accurate results. Cycle counting is especially beneficial for retailers since it means the store doesn’t need to be closed while it’s taking place.

Periodic Counting

This method is quite similar to cycle counting but is slightly more systematic. Some businesses choose to perform periodic counting every three to six months to check the method’s accuracy. 

Seasonal Counting

The seasonal method can consist of spot inventory counts or complete counts. The main reason for choosing this is when seasonal trends change. For example, a clothing business might perform an inventory count as the season is coming to an end to make sure it has sold all the stock it planned to sell that season and prepare for the next season’s products to be stored in its place. In the food sector, seasonal counting is done for those items that are soon to be expired as it may violate health codes.

Annual Counting

An annual inventory count is common for businesses that don’t use cycle-counting procedures or software or don’t have many items. Many companies also perform yearly inventory counts to rectify any mistakes made in the software, as this loss can go towards a tax deduction. An end-of-year stocktake is carried out to be used in the company’s financial statements. Sometimes external auditors are present whose job is to audit the financial statements.

Best Practices for Inventory Cycle Counting

The following are the best practices for inventory cycle counting:

  • Schedule inventory counting as a normal facility operation. Schedule it frequently, as the higher the frequency, the higher will be the accuracy.
  • Rather than random counts, classify the items as A, B, C, and so on groups. Spend more time with the inventory that has the highest value. For instance, Group A represents just 5-10% of the inventory value, Group B represents 10-15% of the inventory value, and Group C represents the remaining 70-80% of the inventory value. So, keep your focus more on Group C.
  • Keep the cycle count methodical throughout the warehouse to ensure that all the products are accounted for. The process should be well-defined and documented.
  • Two individuals can count the products if possible. A comparison can be made later, and discrepancies can be reviewed.
  • Before starting inventory counting, ensure that all the open transactions, such as receiving and shipping are closed.
  • Start the inventory counting cycle at the start or end of the day before the warehouse operations start or after the end of the operations.

Final Thoughts

Whether you’re handling inventory management using Excel or are using a retail solution, inventory counting is a critical part of running an eCommerce business.

Smooth and painless inventory counting doesn’t happen by accident. Details are planned well in advance, and the products, materials, and tools you’ll be using are prepared beforehand. If you intend to do inventory counts anytime soon, be sure to note the tasks we talked about above. Doing so will make your life so much easier.

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