Physical inventory counts are tedious and time consuming, but we know they have an essential role within our operation. Let’s discuss what physical inventory is, how it compares to perpetual inventory, and ideas on how to improve the process.
Physical Inventory – A Snapshot in Time
A physical inventory count means someone in your district visually counts each item 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, there is as little money as possible sitting on your shelves in the form of physical inventory. Physical inventory counts are necessary, but they shouldn’t be the end-all, be-all in how your district manages its assets. Instead, try something that can track your inventory on a daily basis. Enter perpetual inventory.
Perpetual Inventory – Always There When You Need It
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 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 here with physical inventory. Now, back to the ups and downs of physical inventory in your child nutrition program.
Physical Isn’t Forever
The main downfall of physical inventory counts is they only show a snapshot of your nutrition operation’s inventory at a particular time. The next day, when schools 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 time consuming and—believe it or not—expensive. Whether your physical inventory count is 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 starts until its conclusion. That is why most physical inventory counts must occur outside regular business hours.
For warehouses, a physical inventory count can be especially tricky, since most warehouses (especially larger ones) operate on a 24/7 schedule. Employees that participate in the physical count outside their regular work hours must be paid overtime, increasing labor costs for your district’s office.
A (Useful) Snapshot In Time
Physical inventory counts aren’t all bad. For instance, physical inventory counts help you assess everything from personnel to processes to program valuation. A properly run physical count gives the district food service director valuable insight into an accurate picture of your product, and a way to measure personal effectiveness and site efficiency. If there are recurring discrepancies at a site between their perpetual estimation and physical count, conduct more frequent physical counts at that site to pinpoint problem areas.
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. It saves them time and saves you money.
Physical inventory counts also 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 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.