The pandemic has placed a lot of pressure on brick-and-mortar retail, including independent grocery stores. When state and local governments issued stay-at-home orders in mid-March to limit the coronavirus spread, grocers saw their shelves cleared out as a result of shoppers’ panic-buying.
With the rising pressure of achieving optimal operational efficiency during these exceptional times, retailers must be able to achieve near-perfect inventory accuracy. Inaccurate inventories can lead to out of stock items, too much inventory, incorrect reordering information, and ultimately, loss of profit.
Out of stock items could drive customers to your competitor’s stores to find what they are looking to buy. Therefore, conducting a physical inventory is essential; it might be tedious and time consuming but is imperative.
For perishables, conduct inventories at least once per quarter, preferably at the end of each accounting period. For groceries, perform inventories quarterly or at a bare minimum of 2 times per year.
Preparing for a Physical Inventory
- Before conducting the inventory, replenish shelves with stock from the backroom and confirm no merchandise has been stored in other locations such as the cash office or management office.
- Before the physical inventory, straighten all areas of the store, so all shelves are neat and orderly for easy counting.
- Avoid product deliveries during the time of inventory. If it is necessary to receive a product to accommodate a promotion or avoid an out of stock situation, separate the received product from current inventory in a particular area in the backroom to prevent confusion.
- Process all product returns and remove them from the store before inventory.
- Write and return all credits for merchandise to your accounting department before inventory. While this may not be possible to have 100%, this should be the goal.
- Account for any drop trailers in the parking lot. Keep copies of the invoices and manifests for all trucks billed to your inventory.
- Be aware of variances in warehouse or wholesalers’ billing date and the delivery date. Your physical inventory will not account for that merchandise, even though accounting may have recorded it and billed your purchase account. This shrink would be a timing error and can easily be prevented.
- Verify all signage represents the current price of the product. Pay special attention to end caps and displays. Be sure to review any “stable” end caps with the seasonal product (charcoal or bar-b-q merchandise). Too often, the tags are changed at the shelf, but not on the end caps. This can cause an incorrect count due to pricing.
- On an ongoing basis, test scans and reviews of products to ensure they are being charged to the appropriate department. The product may be scanning appropriately but may not be billed by your wholesaler or warehouse to that same department.
Conducting the Inventory
- If store employees are conducting the physical inventory, meet with staff to explain the inventory counting process.
- Assign a specific department or area to each counter.
- Maintain a master list of which areas of the store were counted and who counted them.
- The individuals conducting the inventory should count each item on their sheet and only record the exact quantities. After completing the physical inventory count, compare the physical count to the perpetual inventory record.
- Spot check several of the count sheets to verify accuracy in counting by employees.
- Investigate unusual results. Re-sort the inventory report several ways to look for unusual information and investigate the tag entry associated with each one.
- Further, investigate discrepancies to resolve them. A different counting team may require a recount for any significant discrepancy. If you decided to use your staff rather than an inventory service, a discrepancy in the count might be a red flag that someone dropped the ball. A recount that results in no discrepancies is one option; you have to see that there is no error.
- At the end of the inventory process, adjust the perpetual inventory record for each item to reflect the physical inventory’s quantity and value.
Backroom Stocking Levels
Backroom levels should never exceed 10% of store inventory. This 10% or less level takes into account buy-ins and vendor deals. Inventory levels above this are excessive and often add additional labor expense due to over-crowded and disorganized backrooms.
In conclusion, to stay on top of your game, you need to be proactive, select the right tools, anticipate the market’s demand, and prepare to solve problems before they get out of hands.
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