Assessing shrink is probably the most talked-about reason for a physical inventory. If there is a high Unit shrink, it can likely mean problems with your supply chain. And if there are unit shortages at one store, then there are likely unit shortages in other stores within the region if they are serviced by the same vendors.
If there is a high Dollar shrink, it can mean problems with theft, either by employees, customers or both. This means there are likely deficiencies with your security protocols that will need to be addressed in order to stop the bleeding. If your employees know you’re watching, they’ll be less likely to steal, engage in discount abuse, under-ringing for their friends, etc. When you look at year-over-year numbers, it can reveal problem spots and you can determine if it’s a one-time fluke, or a recurring trouble area.
There are other reasons for conducting physical inventories. One is, simply put, replenishment–determining what items you need more or less of. You want demand and supply to match as closely as possible, and a physical inventory can uncover gaps in your ordering process. It can also reveal pricing inaccuracies and inconsistencies, all of which is costing you money.
Of course your Accountant will also need you to conduct physical inventories at least once per year in order to obtain an accurate dollar snapshot for tax purposes. The more accurate the count, the more money you’ll save this year, and next year.
And if you currently use any sort of inventory tracking processes or software, you will occasionally need to update that system with the most current, accurate information. If you don’t have accurate data, the whole process breaks down.
Your business can be like a lake or ocean. It may appear to be smooth-sailing on calm seas, but physical inventory counts can be like the goggles that let you see below the surface and become aware of what’s really going on. And you may not like what you see!