Skip to main content

/ 1.27.2022 / Retail Tips and Tricks

A good retail inventory management system makes keeping track of the items you have in stock easier. But technology can’t completely replace the need to take a physical inventory on a regular basis. A physical inventory supplements your inventory management system with an in-person count of the items you have on the shelves, in the stock room, or at a warehouse. It’s basically an audit that identifies any discrepancies between your records and the products you have on hand. 

Why you need to take a physical inventory

By optimizing your inventory management technology and taking regular physical counts, you can be confident in your reporting, sales projections, and ordering – which translates into increased efficiencies, enhanced customer experiences, and more sales. In today’s omnichannel retail environment, inventory management is more important than ever. Here are a few real-life examples of how physical inventory makes a difference.

  • A customer buys five different colors of the same item. But the sales associate rings up the sale as five of one color. Your automated inventory will show incorrect quantities by SKU, which can create customer dissatisfaction and misaligned re-ordering until you’re able to reconcile the amounts after a physical inventory. (And you’ll also want to remind your team about why it’s important to ring up each item at checkout!)
  • A shopper drops and breaks an item. The busy sales associate who cleans up the mess forgets to enter the loss in the inventory system. While it’s not necessarily a big deal, these types of oversights can add up to significant inventory and accounting discrepancies over time. 
  • A customer checks online to make sure the product he wants to buy is in stock before visiting your store. (Google reports searches for “in-stock” spiked by 700 percent in 2021 alone!) Your website tells him the product is available based on your inventory management system, but because of a scenario like the one above, the product isn’t on the shelf when he arrives at the store. 

Regular physical inventory counts help to minimize these situations. So, what’s the secret behind an effective physical inventory strategy? Incorporate the following five best practices when preparing for your store’s next physical count. 

1. Have a plan.

It may seem obvious, but successful physical inventories go much more smoothly when you make and execute a plan. Mapping out a plan and doing a little advance prep work will save time (and reduce frustration) on inventory day. Use this checklist to develop an end-to-end plan:

  • Create a map of the areas you’ll inventory within your stores, stockrooms, and warehouses. Determine a logical order and flow for taking the inventory counts.
  • Organize your stock as much as possible so that it’s easier to count – and check shelf and item tags and UPC coding. 
  • Decide who will be part of your inventory team. Choose a trusted group of associates and keep the number as small as possible to keep the task manageable.
  • Review the plan with the team, assign specific roles, and conduct training.  

Related: 3 Secrets Behind Effective Inventory Management

2. Contemplate the date.

Timing is everything when conducting a physical inventory, so choose your date carefully. In-person counting of everything you have in stock is a big undertaking, so most retailers do a physical inventory once or twice a year. The timing should align with key accounting and seasonal sales dates – and the unique needs of your business. For example, fashion retailers may elect to conduct a physical inventory at the end of a season, while small brick-and-mortar stores may conduct periodic physical inventories every few months. 

In most cases, a physical inventory can’t be completed while a store is open for business. When choosing a date, think about whether it can be accomplished after business hours or if you’ll need to close the store for a few hours. 

3. Consider cycle counting.

If an all-in single physical inventory event doesn’t make sense for your business, explore a cycle counting approach. This method breaks the process down by allowing you to take systematic, partial inventory counts on a continual, rotating basis. You’ll need to devise a detailed weekly or monthly schedule and ensure that every corner of your store and stockroom is included in the rotation. For example, you can organize the inventory by sections of the store or product categories. And to further customize cycle counting to fit your business, you can also build in the ability to count high-volume or high-value items more frequently. 

4. Optimize your POS system.

Pairing strategic physical inventory counts with an integrated point-of-sale and inventory management system is business-critical for omnichannel retailers. Inventory management technology and automation make perpetual inventory not just possible but easy. At the same time, your POS system can also help streamline physical inventory processes. For example, take advantage of features that allow you to enter counts into an entry screen within your POS system or import data compiled in inventory spreadsheets. In addition, leverage handheld devices to scan barcodes, enter item numbers or record inventory counts. 

Related: How to Choose or Upgrade Your Retail POS System

seamlessly connect e-commerce

5. Reconcile and analyze.

Physical inventory will uncover discrepancies when compared to your ongoing reporting. After completing the physical count, it’s time to reconcile the numbers with your inventory management reports – and determine the reasons behind any differences. While most differences will likely be attributed to simple human errors or damaged items that occur in day-to-day retail operations, regular in-person counts can also help you identify shipping errors, fraud, or theft problems. Before jumping to any conclusions, it’s a good idea to first recount items where you see a significant discrepancy between your physical count and your inventory reports.

When you do regular physical inventories, you can start to identify patterns over time that will help you make operational enhancements, adjust ordering amounts or timing, and effectively manage in-stock inventory. But good inventory management doesn’t just happen. It’s a result of thoughtful planning, teamwork, and smart inventory management. Make sure you’re getting the most out of your POS system to increase inventory efficiencies and turn the data into insights to help grow your business. Explore what’s possible with POSIM, an integrated point-of-sale and inventory management system. Discover which POSIM plan is right for your business and request a demo today.

Philip Beedle

General Manager | POSIM

My articles |

retail physical inventory best practices


More from the blog

10 things retailers need to know about influencer marketing

The Top 10 Things Retailers Need to Know about Influencer Marketing

retailers building customer trust

How Retailers Are Building Customer Trust

gen z shoppers

3 Ways Retailers Should Prepare for Gen Z Shoppers

posim how to map out retail customer journey

How to Create Customer Journey Maps that Drive Retail Sales

posim reports retailers need

Optimize Your Data: The 5 Reports Every Retailer Needs

what is omnichannel inventory management

What is Omnichannel Inventory Management? And Why It Matters for Retailers

5 proven retail marketing promotions for the holidays

5 Proven Retail Marketing Promotions for the Holidays

posim holiday shopping season checklist

Holiday Shopping Starts Now: A Preparation Checklist for Retailers

posim customer retention growth

6 Ways Retailers Turn Customer Retention into Growth

posim customer loyalty program

How to Create a Customer Loyalty Program that Works