Managing physical inventory is a crucial part of running your business,
if it is not monitored correctly you could have large variances, both negative
or positive. A physical inventory count is carried out to determine the exact
physical quantity of an article that is in your store at a particular time.
Stock quantities are then updated based on the actual level determined during
the physical count.
It is important to monitor the accuracy of your stock levels, not only to
identify any stock loss that may be occurring, but also to avoid processing
sales against stock that you physically do not have, also to know when it is
necessary to replenish stocks that run low.
If you are asking about the stratification analysis: i.e.: after the unit
cost X annual volume is calculated for all items, you sort the list and mark off
the strata from the top down:
A = 70% - 85% of accumulated value
B = 10% - 20% of accumulated value
C = 5% - 10% of accumulated value
D or Blank = fasteners, no cost/low cost items etc.
The logic is that the A items will be comprised of costly or high volume
items that account for the majority of the company’s inventory assets. These
are usually only about 15 – 20% of the material numbers in the database. They
are usually counted 4 times or more per year. Some companies count these every
month. Mismanaging these items can bankrupt the company and they deserve
special attention. Anyway that is the conventional wisdom.
B items are middle value/volume and are usually counted twice a year or
C items are low cost/volume items and are usually counted only once per
year. They usually account for about 80% of the number of items in inventory
but only 20% of the value. The most important thing about C items is to keep
them in stock so you don’t run out.
The selection within each stratum is usually random but not necessarily.
Some companies will store the items in segregated shelving and count by shelf,