Many Companies assume conducting an Annual Physical Inventory is the preferred method to validate the inventory investment and the cost of goods sold figures on the financial statements. An effective cycle counting process may be an alternative with consistent benefits to your organization. These benefits include lower expenses, improved service, and consistent information to help improve management decisions. Yes, it is possible to have an approved process in place, which is acceptable to both internal and external auditors! The path to success includes obtaining buy-in from the key stakeholders at the start of your initiative to improve inventory accuracy.

Accounting and Finance Buy-In

In the words of Stephen Covey, we must seek first to understand. Take the time to listen to your Accounting and Finance departments and hear the challenges they are faced with on a daily and weekly basis. Having an open dialog will contribute to developing strengthened relationships and help everyone work together to obtain common goals. Again, to rephrase the wisdom of Covey, we should be able to restate the needs of others from their view. Take the time, to build trust by understanding their challenges, including inventory related dilemmas. Listen to their challenges from their perspective, understand their critical success factors, and help them identify what’s in it for them to obtain inventory accuracy on a regular basis.

External Auditors

Engage your external auditing firm at the beginning. Reach agreement on what they need in order to approve your financial statements without using the results from an Annual Physical Inventory. Get this checklist early so that you can weave the requirements into your implementation plan.

Keep Stakeholders Involved

During the implementation of your cycle counting process, keep your stakeholders involved in the process. Continue to reiterate the goal is not to count parts and fix errors, but to correct and verify the process to move materials, so the result is accurate inventory at all times. Your stakeholders may require multiple audits over an extended period of time and they may need reassurance that this is not a program that will be disbanded. Help them see that inventory accuracy is the ongoing result of improved processes. When you are comfortable with ongoing inventory record accuracy, invite your stakeholders to participate in “audits” scheduled during a time that is convenient for them. Make the “audit” fun and easy for those that may be skeptical about your improved processes.

Summary

Your goal is having inventory accuracy on a continuous basis. One of the many benefits of such a goal is the ability to demonstrate to stakeholders that the Annual Physical Inventory is an activity that is costly, less accurate, and no longer needed. Engage your stakeholders at the beginning of your improvement initiative and you will be on the path to success.