The value of inventory counting cannot be overstated. Think of your inventory as an ecosystem that needs to be kept in balance, where both understocking and overstocking can have costly consequences for your dealership. Maintaining that balance is why it’s important to manage your inventory count.
Inventory counting may sound like it’s straightforward, but it’s not as simple as just beginning to count what you have in stock. A proper dealership inventory counting system will make all the difference. We collaborated with Jon Schreibfeder, the president of Effective Inventory Management Inc., and created a guide on Effective Inventory Counting, which you can download at the end of this blog.
Here are our best tips that your dealership can rely on when it comes to inventory counting.
Table of Contents
- How Often Should You Count Inventory?
- What is the Best Way to Count Inventory?
- How Do You Count Inventory?
- Cycle Counting – A Type of Inventory Counting
- What Happens After Inventory Counting?
- Guide on Effective Inventory Counting
How Often Should You Count Inventory?
You should pick a time to count inventory when it will cause the least amount of disruption to your business, employees, and customers. Typically, this will be at the end of the year, which is also the slowest time of year. Note, however, to avoid counting around the holidays when you know your employees will be unavailable.
The actual planning process should begin at least 12 weeks before the actual count is scheduled. Although this is a good rule of thumb for annual inventory counting, another alternative you may want to consider is cycle counting. We go into more detail about the cycle counting method later in this blog post.
What is the Best Way to Count Inventory?
The best way to count inventory will depend on your business and its goals. What may work for one dealership may not work for yours. But there are a few tips that you can keep in mind regardless of your preferred counting method and will work for any dealership.
Select Your Method
Here are three types of inventory counting methods you can choose from:
- Using this method requires that you label your items/bins for the barcode reader to scan. Once the barcodes are scanned, they’re uploaded into a software program, like your dealership management system, that can be easily accessed for evaluating the results of the inventory count.
- The benefit of barcode readers is that it is the most accurate counting method.
- The downside is that it’s also the most expensive.
- This method involves utilizing 8 ½’’ x 11’’ pieces of paper where each page has roughly 25 inventory items. The contents of each page should correspond to an area of your warehouse.
- Misplaced items or products that are not listed on the sheet should also be counted.
- These are index cards that have the name of the individual product and its bin location. The cards are placed on the shelves or bins before the count begins. The card that records the count is already in the bin which lets you quickly count each bin in sequence.
- Every person who counts should also have a supply of blank cards with them so that if they discover a misplaced item, they can accurately record it.
- The cards should be brightly coloured so that any parts that need to be moved to their proper place can be easily located after the count is complete.
The number of people it takes for the inventory count depends on the method that you have chosen. One person can handle the counting for the barcode method. A two or more-person team is advisable if you’re using either the count sheets or count cards methods.
On a team of two or more people, you will want one person who is an experienced employee to do the actual counting and someone less experienced so they can familiarize themselves with your dealership’s merchandise. You may also find it helpful to temporarily hire people to assist with the count.
Once you’ve selected your inventory count team, set aside a date to train them on the inventory counting process and how to use any equipment, such as the barcode scanners. As part of the training, give your staff guidelines on how to handle certain situations that may arise during the count, such as missing stock, duplications, or misplaced items.
Prepare the Counting Area:
By this stage, you are almost ready to begin the count.
The last step is to prepare the areas where the counting will take place. Clean the area at least two weeks before the count begins. This means putting every piece of merchandise is in its proper bin or location.
Having the items in their proper place ensures that your count goes more quickly and accurately. It is also a good habit to instill in staff, not just to help with future inventory counts, but to save your employees and customers time when looking for merchandise.
As part of your preparations, ensure that you have all the necessary supplies needed to conduct your count such as cards, pencils, clipboards, etc. Similarly, check the equipment that you’ll be using before the count to ensure that the equipment is working. You should also pull any parts out of inventory that are required for current service orders so that they are not included in the count.
Lastly, and most importantly, don’t forget to communicate your plans for inventory counting to employees, suppliers, manufacturers, customers, and anyone else that could be affected, especially if the counting will take place over a few days.
How Do You Count Inventory?
Once the proper planning and preparations for your dealership’s inventory counting have been made, it is finally time to begin the count.
- Break up the counting into small groups
Break up the counting into small groups that will handle the counting of different stocking areas. This will help your staff from being overwhelmed by the counting process and make it go more efficiently.
- Divide the stocking area into counting zones
Create a map of your stocking area that encompasses every shelf, bin, drawer, receiving dock and return area. Label the sections on the map with the items including item description, part number, quantity, and unit of measure. Having the maps available for your team will make them aware of their designated counting zones and prevent any overlap and duplicate counting.
- Start counting
As your staff begins to count, it’s important for them not to misplace the material and ensure that merchandise they’ve counted is placed back in their rightful place. Additionally, you should not be filling orders or receiving any material during the actual count process. Have a manager verify the count once your staff complete different sections of their designated areas. Once the counts are verified, enter them into your dealership management system or spreadsheet. Going forward, you’ll want to keep your inventory organized as best as possible.
Cycle Counting – A Type of Inventory Counting
The alternative to annual inventory counting is cycle counting. Cycle counting is a method of inventory counting that takes place over various times of the year and different areas of your inventory are counted as opposed to an annual counting of all your inventory. Cycle-counting can ease the burden of conducting the demanding task of annual inventory counting. The best way to conduct cycle counting is by using what Schreibfeder refers to as “The Ranking Method.”
The Ranking Method
The Ranking Method works by counting items that bring in the most money more often than your slower-moving products. It operates based on Pareto’s law or the 80/20 rule. As it pertains to your dealership, the rule maintains that the majority of your sales (i.e., 80%) will come from a few of your items (i.e., 20%). The number of times a year you count inventory will depend on how you divide and rank your merchandise according to the 80/20 rule. For example:
Note that the 80/20 rule is a general guideline and the numbers do not have to be exactly 80% or 20% since it will vary from dealership to dealership. The rule of thumb is to count the items that are your biggest sellers more often than items that sell the least.
What Happens After Inventory Counting?
Congratulations! Now that you’ve finished the count, what’s next?
Don’t forget to reward your team for taking part in the inventory count. It’s also important to get your employees’ input on the counting process so take some time to review and document what worked well, what didn’t work, and what to change in the future.
After you’ve inputted the results of your count into your DMS or spreadsheet, you’ll want to print and review the discrepancy reports. Note, that regardless of the DMS you’re using, it won’t do you any good if the quantities inputted are incorrect. It might cause your employees to mistrust the DMS if it consistently has the wrong quantities in the system. It will also reflect negatively on your dealership if a customer comes in looking for a part that you don’t have available.
Getting the count right will allow you to make the most of your DMS capabilities, maximize employee efficiency, and produce higher customer satisfaction rates at your dealership.
Download the Guide
Want to get even more tips from our top dealership experts? Click here to download our Guide on Effective Inventory Counting.