They can’t count and then they can’t add

Most companies take physical inventories on December 31.  Today’s memo is being emailed on New Years Day.  So, a short note about inventory.

The title of this:  “they can’t count and then they can’t add” is a direct quote from the controller of one of my long time clients.  They have been in business over 50 years.  They take physical inventories every quarter (including New Year’s Eve).  Last quarter the physical count and cost extension showed a 25%+ variance (loss).  The controller was convinced that the plant employees did not count it right, and once they counted it and applied the cost factors, they did not add it correctly.  He was right; the variance reversed almost exactly on the recount.  The plant staff had become sloppy.  The first count, no tags were used so they could see what had been counted and what had not.  There was no double count (usually two people should do the counts).  The raw stock, work in process and finished goods had not been physically sorted and neatly stacked to facilitate the counts.  Shipping and receiving cutoffs were not done properly.  All standard procedures that were not followed because they were sloppy.  It cost the staff their normal day off after the inventory counts, when the owner ordered it redone, and redone correctly.

If you are going to count it, count it right, or no day off.

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