Counting inventory the easy way…is it really possible?

No doubt many of you at some point or another have taken part in stocktaking. Given the promise of reasonable money for relatively little work, counting inventory tends to be a favorite job opportunity amongst the student population. Alternatively though, maybe you were forced (kicking and screaming) to lay down your usual work and help your company cope with this yearly endeavor. If your company carries out cycle counts, perhaps you are able to enjoy the delights of counting inventory on a regular basis. Either way, everyone who has had the opportunity to share this special experience will probably agree: It can be quite mind-numbing.

After all,  endless hours of counting, desperate attempts to correct counting errors and futile struggles to find lost items with cryptic identifiers between dark warehouse shelves rarely  makes for interesting dinner conversation. Moreover, having to work overtime and on the weekend, which an annual stock-take typically demands, hardly sweetens the deal.

While you personally may have mixed feelings about inventory-taking, businesses aren’t necessarily fond of it either. Given the huge amount of people required to complete the process (many of whom will have to lay down their normal tasks) and the fact that the warehouse must be closed for days, inventory-taking can quickly become a very expensive activity.

For example, counting one item could cost between €2 and €10. Thus, a warehouse with 10,000 different items could cost a staggering €20000 (about $26.000) if not more. This is a huge investment, especially as stock must be counted every year.

The classic inventory-taking process seems quite anachronistic in these modern times, where people can roam freely thanks to wireless internet and touch-screen devices. Surely you have asked yourself (while counting “321, 322, 323…ahem, where was I?”): Is there not an easier and less costly way to carry out stocktaking?

Well there is, and it’s called inventory sampling. Through using the inventory sampling method you only need to count a small number of your most expensive items. All the other items are then distributed into several zones, from which samples are taken. The sample results are then extrapolated to the respective zones. By doing so, you are only required to count between 5 and 15 % of the actual stock. In automated warehouses, where inventory reliability is naturally very high, you could count as few as 30 items through utilizing a slightly varied method.

But is extrapolation really that accurate? Ask a mathematician and he will confirm; when evaluating large numbers, inventory sampling is even more accurate than manually counting each individual item. As the size of the warehouse and the number of people involved increases, traditional counting processes become more exposed to human error. It seems this can lead to a classic case of too many cooks spoiling the broth…

But don’t just take my word for it: In Germany, Austria and Switzerland the inventory sampling method has even made it into commercial laws (as early as 1977 in Germany) and is completely approved by auditors. Over the years inventory sampling has become one of the major options when it comes to stocktaking. The bigger the warehouses get, the more likely they are to implement the sampling procedure.

As fewer items must be counted, the number of man hours is minimized and the warehouse downtime can be reduced, if not avoided completely.  Thanks to inventory sampling, businesses have been able to cut the cost of stock taking by as much as 95%.

While there are some things you can’t change and you may still have to count some items, at least your weekend won’t be disturbed. And sometimes counting can even be fun: