Hopefully you’re very familiar with the term physical inventory because your program conducts regular physical inventory counts, but let me just hit on the high points as a refresher for those who aren’t.
Physical Inventory – A Snapshot in Time
A physical inventory count means that someone in your district, whether that’s you, site managers, or cooks and serving staff, visually counts each item being stored in that facility. Counts are recorded and used as a benchmark to assess how much product (aka. money) is hanging out on your shelves. Ideally, you want as little money as possible sitting on your shelves in the form of physical inventory. I explained the reasons for why this should be your goal in this previous inventory post.
Physical inventory counts are important to conduct, but they shouldn’t be the end-all, be-all in how your district manages its assets. You need something that can manage your inventory comings and goings on a daily basis. Enter perpetual inventory…
Perpetual Inventory – Always There When You Need It
On the flip side of the ‘snapshot in time’ view of your nutrition operation that a physical inventory count gives you is perpetual inventory management. As you might have guessed with the use of the term perpetual, this method involves a constant tracking of your inventory, day in and day out. Perpetual inventory tracking typically requires a software system of some kind that includes automated tracking of orders, put aways, and production.
In a separate inventory-related blog article, we’ll discuss perpetual inventory management in greater detail, much like we’re doing this week with physical inventory. For now, let’s get back to the ups and downs of physical inventory in your child nutrition program.
Physical Isn’t Forever
I mentioned the main downfall of physical inventory counts earlier in this post – physical counts only show a snapshot of your nutrition operation’s inventory at a particular point in time. The next day, when schools all across your district start production on that day’s meals, the physical inventory count conducted on the day prior no longer paints an accurate picture of your district’s holdings, both from a products and financials aspect.
Additionally, physical inventory counts are very time consuming and—believe it or not—expensive to conduct. Whether your physical inventory count is taking place in a small school stock room or a massive district warehouse, you must bring your entire operation to a standstill from the moment the count is started until its conclusion. It is because of this reason that most physical inventory counts must occur outside of regular business hours.
For warehouses, conducting a physical inventory count can be especially tricky, since most warehouses (especially larger ones) operate on a 24/7 schedule. Those employees that participate in the physical count outside their normal work hours must be paid overtime, increasing labor costs for your district’s office. Time is money, and money isn’t cheap, y’all!
A (Useful) Snapshot In Time
Physical inventory counts aren’t all bad though. I know I’ve been harping on them pretty hard so far in this post, but they do have their good points.
For instance, physical inventory counts help you assess everything from personnel to processes to program valuation. Let me explain. A properly run physical count gives you, as the district food service director, valuable insight into what is actually going on within your operation. Not only do you get an accurate picture of product, but also you start to glean an overall picture of personnel effectiveness and site efficiency. If you notice recurring large discrepancies at a particular site between their perpetual estimation and physical count, conduct more frequent physical counts at that site to pinpoint problem areas so remedies can be made.
On the flip side, if a school’s physical counts always come out near perfect when compared to its expected inventory, you may decide to let them conduct their physical counts less frequently than other sites as a reward for solid processes being in place. This saves them time and saves you money.
In addition to gauging the efficiency of each school location within your district, physical inventory counts provide an accurate valuation of how much money you have tied up in your inventory. Once a physical inventory is complete, you have a new “absolute zero” baseline from which you can start the next physical count.
Less Time? Cycle Count It Out.
In many cases, blocking out enough time in one chunk is just not realistic or possible within your operation, especially for districts that have a central warehouse. It is much easier for a warehouse to only shut down small portions of its operation at one time. With the concept of cycle counting, you can do just that and still gain an accurate picture of your inventory.
Cycle counts allow you to count only certain parts of the warehouse at a time. You should still complete an entire physical inventory once a quarter. With cycle counting it will just be split into equally spaced out, pre-scheduled days.
For example, say that a new year has just started and you plan to conduct a physical inventory count on the first Friday of every month within your current quarter. You could conduct a count of just dry goods on the first Friday in January, meats in February, and other remaining categories of items on the first Friday in March. As long as the process is set in stone and recurs on the same date every quarter with the same amount of time elapsed between countings, the cycle counts provide an accurate inventory picture as an entire count completed in a single day.
Remember to check back next week for my follow-up post – the importance of perpetually managing your inventory.
In the mean time though, let’s get to chatting! How does your district approach the task of physical inventory counting? I would love to hear what you think! We can all learn from each other’s best practices, so the more the share, the better we all become!
