PHYSICAL INVENTORY COUNT MEMO

To: All (Company) Inventory Participants

From: (Company) Inventory Committee

Dates: (Date) – (Date)

Subject: Physical Inventory Instructions

A physical inventory is a process where personnel manually count all inventory and compare the counted
quantities to the on-hand quantities within enterprise resource planning (ERP) software in order to identify
discrepancies. This is critical in ensuring that the accounting records are complete and accurate.

All (Company) locations will use and follow these physical inventory instructions to increase the efficiency of
inventory counts and reduce the possibility of errors.

ROLES AND RESPONSIBILITIES (SEE ROLES AND RESPONSIBILITIES EXCEL FILE)

FOR ASSIGNMENTS)
TAG CONTROL:
 Print and control count sheets
 Print and control count labels
 Maintain log sheet that tracks when a sheet is issued out for count to the area coordinator and when it returns
to the control center (includes count change forms)
 Coordinate with audit team to perform audits of locations when initial count is complete
 Forward complete and audited location sheets to data entry

COORDINATOR:
 Sign out count sheets from tag control and distribute to team captain for counting
 Ensure that all items for each designated area have been counted and labeled with colored labels and that all
sheets issued are returned to tag control
 Accompany audit team to area during count audits
 Communicate directly with war room on issues regarding inventory counts for each designated area

TEAM CAPTAIN:
 Lead count team in the physical counts for each designated area
 Assign sheets to count team members
 Collect all completed count sheets and deliver to area coordinator
 Ensure that all counters are properly maintaining count sheets, legibly recording counts on sheets, and
initialing the count
 Ensure that all items are physically marked with colored labels after counting

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AUDIT TEAM:
 For each location counted, conduct an audit of one count on every count sheet
 If a discrepancy is found on any sheet, audit an additional two counts
 Communicate audit findings immediately with the count coordinator
 If errors are found on more than three counts within any one sheet, designate someone other than the original
counter to perform a recount of the entire sheet

DATA ENTRY:
 Enter counts from the count sheet into ERP software

ANALYSIS:
 Generate variance and other analysis reports to track count progress, percentage complete and dollar
variances
 Coordinate investigations of variances and any recounts required with area coordinators
o A variance investigation is required for any variance greater than $1K or two percent of the item’s value
(potentially revisit at the end of the day)

COUNT INSTRUCTIONS

GENERAL NOTES DURING COUNT:

 Only count good, usable items during the physical inventory
o If counters find items that are not usable, set them aside
 If you are unsure about how to inventory an item, mark it with a blue dot sticker
 If you are unsure about anything, please ask area coordinator or team captain for assistance

PRIOR TO THE COUNT:

 For ease of counting, clean all areas
 Review item location assignments and make corrections as needed
 Ensure that all item locations are clearly identifiable
 Arrange items so they can be easily counted in batches, if possible
 Remove any hazards in the warehouse that could be dangerous during the count (e.g., boxes, items that could
fall, etc.)
 Section off obsolete/scrap items

CONDUCTING THE PHYSICAL INVENTORY (RAW MATERIALS AND FINISHED GOODS):

 Do not move material while people are counting
 Each count team should:
o Have two members: one person to count items and a second to record the counts on count sheets and item
information on count stickers
o Stick the count stickers to the item locations
o Switch roles occasionally so members stay sharp
 Ensure proper control over count sheets

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 o Ensure that all sheets issued to counting teams are sequentially numbered, accounted for and returned
after the counting process is finished (including voided or unused sheets)
 Record item count quantities on the sheets and physically place a count sticker at each item’s location
o Count sticker should include:
 Date
 Part number
 Quantity
 Sheet number
 When an area has been counted, the coordinator is responsible for ensuring that all items have been counted
and identified with a count sticker

PHYSICAL ITEMS IN LOCATION NOT LISTED ON INVENTORY SHEET:

If the company is physically storing an item but it there is no corresponding item/location information in the ERP
software, please follow these steps to correct the software and properly record the item’s location and quantity:
 Request the blank inventory count sheet from the coordinator
 The coordinator should obtain the blank inventory count sheet from the tag control room
 The tag control lead should log that the sheet has been distributed
 The counter should fill out the blank inventory count sheet
o Fill out the information legibly
o Include the item, location, unit of measure (U/M), counted quantity and count date on the count sheet
 The counter should return the blank inventory count sheet to the supervisor, who will then return it to the tag
control room
 The tag control lead should log that the sheet has been returned and transfer the sheet to the data entry lead
 The data entry person should enter the blank inventory count sheet into ERP software
 The new item/location record for the item should get created at this time (count quantity will not be put into the
new item/location’s quantity-on-hand until later, when the physical inventory is approved and posted)
 The data entry person should file the blank inventory count sheet with the completed/entered count sheets
 Coordinators should record the items that require a blank sheet for post-inventory cleanup

CORRECTIONS TO INVENTORY COUNTED

 Please follow these steps when a count correction needs to be made and is caught before the count sheet has
been turned in:
o Completely block out the incorrect count quantity on the count sheet by drawing a single line over it with a
pen or marker
o Write the correct count quantity next to it on the count sheet
 Correct the count on the item label as well
o The coordinator should initial next to the corrected count on the count sheet, verifying the change
 Please follow these steps when a count correction needs to be made after the count sheet has been turned in:
o Notify a coordinator that a change is needed
o The coordinator should go to the tag control room to get the count change form
o The tag control person should enter into a log that the count change form has been distributed
o The counter or coordinator should completely fill out the count change form
 All fields are required:
− Sheet

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 − Location
− Item
− U/M
− Quantity change from (incorrect total previously counted)
− Quantity change to (correct total count)
 Correct the count on the item label as well
− Employee requesting change
− Coordinator initials
− Reason for change
o The coordinator should return the count change form to the tag control room
o The tag control person should log that the count change form has been returned
o The data entry person should retrieve the corresponding “incorrect” count sheet in the file of completed
count sheets
o The data entry person should change the count entry in ERP software
o The data entry person should staple the count change form to the corresponding count sheet and re-file it

COUNTING WORK-IN-PROCESS (WIP) INVENTORY

 (Insert Name) and (Insert Name) to own (Insert Location A)
 (Insert Name) to own (Insert Location B)

WIP inventory is any inventory that has been issued to a specific production job, but has not been shipped in ERP
software.
 Utilize the existing WIP perpetual report and finalize a listing of open WIP jobs on the first day of the count
 Generate a single count sheet for each job
 Count and seal the items

Please direct all questions regarding WIP inventory to (Insert Name) and (Insert Name), (Insert Location A) and
(Insert Name), (Insert Location B)

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