Best Practices for Effective Inventory Counting

Dealerships often have a love-hate relationship with inventory. While crucial for success, it often gets neglected for other departments.

This leads to increased spending. When your dealership is overstocked your extra spending goes into insurance and inventory tracking. this adds cost already incurred from previous overstock and obsolete parts.

Did you know that every $100 in misplaced or damaged parts, could take around $1,000 in sales to offset the loss?

Take control of your dealership’s inventory with this guide on the most difficult part, the physical Inventory counting process.

Learn some tips and tricks on how to prepare your dealership and employees for your inventory count. Industry experts Jon Schreibfeder and Jeff Sheets are going to share their recommended tools and methods to boost your counting process.

Preparing for a Physical Count

Accurate assessment of your inventory is vital for effective control. Tracking inventory accuracy prevents mistrust and ensures quality customer service, avoiding wasted time and missed sales opportunities.

Dealership software only effective if you’re tracking inventory accurately. Therefore, it’s extremely important that you and all of your employees understand the value of a physical inventory count.

The end of the year is a great time to plan a full physical inventory count. It’s your slowest time of year, plus it puts you in great shape heading into the next year.

TIP: Start planning your annual physical inventory process no later than 12 weeks before the count date. You should also avoid planning around holidays when you know employees will be occupied.

Read next: How to Establish Inventory Goals That Work

Three methods for conducting an inventory count:

1. Bar-Code Readers or Mobile Device: This is the most accurate method, however the most expensive. This method requires your items/bins need to be labeled and you need a software that can register the counts. The benefit, however, is that your inventory levels are more accurate because human error is greatly reduced.

2. Count Cards: Count cards are usually index cards containing product details. They are usually organized in a bin allowing you to count each bin in sequence. This process is relatively quick because the card that records the count is already in the bin.

TIP: Schreibfeder recommends printing blank cards on brightly colored card stock. This makes it easier to find them when the count is finished.

3. Count Sheets: These are usually 8 ½” x 11” pieces of paper that list roughly 25 inventory items. Schreibfeder recommends that if you use count sheets, make sure the counters also take into account misplaced material and products. not listed, rather than just focusing on only the items listed on their sheets.

Who should count the inventory?

Create a strategic plan for inventory counting. The barcode/mobile device method can be done by one person whereas cards and sheets need two-person counting teams. Pair an experienced employee with someone less knowledgeable, with the former counting and the latter recording.  

The teams should consist of an experienced employee, paired with someone with less knowledge. While the more experienced person count the other will record. This approach helps employees become familiar with merchandise and trains them in inventory counting best practices. 

Read next: Monthly Checklist for Dealership Parts Managers

Preparing the stocking area

Cleaning the stocking area is vital for accurate inventory management. It ensures items are in their designated bins and improves overall dealership accuracy. Regular cleaning habits help maintain proper organization. Schreibfeder recommends cleaning the stocking area at least two weeks before the count to facilitate a faster counting process.

Organise Your Counting: Schreibfeder states, the first step in organising your inventory count is to divide your procedure into manageable sections. This prevents your staff from feeling overburdened by the idea of having to count thousands of pieces at once. 

Tip: Always remember to check that you have all the necessary supplies needed to conduct your counts. This includes cards, clipboards, pencils, etc.

Executing the Count

Step 1. Organise Your Counting: Schreibfeder states, the first step in organising your inventory count is to divide your procedure into manageable sections. This prevents your staff from feeling overburdened by the idea of having to count thousands of pieces at once.

Step 2. Create a map of your stocking area: Every shelf, bin, drawer, receiving dock, and return area should be covered by this. For this to be successful and worth your time, you must count every item in your inventory.

Step 3. Divide your stocking area: Assign counters to geographic areas, not product lines, to avoid missing parts between major lines. Prioritize surplus areas and slow-moving items before the scheduled count. Start with seasonal items that aren’t expected to sell before the count. Clearly mark pre-counted bins and shelves to reduce stress on employees during the main count.

Step 4. Start the count: When you’re done counting a small portion of the bins, let your parts manager confirm the results. Start by focusing on the goods that are most profitable and in-demand. Focus on items prone to counting errors first. These can be finished and then entered into a spreadsheet or management system.

A couple of other things you should implement into your pre-counting plan: 

• Pull parts for service orders  
• Fulfill pending orders  
• Avoid movement of misplaced materials during counting  
• Temporarily halt order fulfillment and receiving processes. 

Remember to double check your discrepancy reports and document what was done. You can then hold a meeting with employees to assess the process and identify areas for improvement. This should make your next full inventory count run much smoother.

Read next: 7 Proven Steps to Controlling Your Inventory

Cycle Counting

Cycle counting is an alternative to performing a significant annual count. You can use this method to count various parts of your inventory at various times of the year. This approach may be more accurate because you concentrate on particular parts rather than the entire picture.

A typical year has eight months where cycle-counting is most prevalent. Your cycle-counting should be done using what Schreibfeder calls “The Ranking Method.”

What is the Ranking Method?

With the Ranking Method you start with the most expensive and highest demand inventory down to your slower-moving products. Using Pareto’s Law, roughly 20% of your inventory is responsible for 80% of your stock sales.

You should break your “rankings” like this:

• “A” rank items (those responsible for the top 80% of sales) count six times per year.
• “B” rank items (responsible for the next 15% of sales) count three times per year.
• “C” rank items (responsible for the next 4% of sales) count twice per year.
• “D” rank items (responsible for the last 1% of sales) and products with no sales count once per year.

Your Parts Manager should be responsible for cycle-counting. Dealership consultant Jeff Sheets feels is beneficial for maintaining more accurate counts.

Inventory FAQ’s:

What is Inventory Counting?

Inventory counting is when you physically count and record the amount of items or products that a business has on hand.

What makes inventory counting crucial?

Accurate inventory counting is crucial for firms to stay updated on stock levels. It enables accurate financial reporting, effective supply and demand management, error detection, and prevention of stockouts or overstocking.

How frequently should inventory be counted?

The size, sector, and requirements of the company all influence how frequently inventory is counted. Some dealerships do full physical counts once a year, while others might count more regularly. It may be necessary to count goods more frequently if they are valuable or move quickly.

How can I make sure my inventory counts are accurate?

You can do the following:

• Train employees on proper counting procedures and how to use counting tools.
• Use standardised counting methods, such as batch, location, or item counting.
• Perform evaluations after business hours or during slow periods.
• Carry out spot checks and take prompt action to correct any errors.
• Regularly review and update inventory data.

What if my inventory records and physical counts don’t match up?

Physical counts that differ from inventory records might happen as a result of theft, missing objects, or incorrect data entry. It’s crucial to look into the reasons, fix the problems, and update the records as necessary. Rechecking totals, going through transactions, and putting safety precautions in place could all be part of this.