|
The Annual Inventory
 In a physical inventory audit, normal operations cease while every inventory item is
identified and counted. The physical counts are then compared to
records and, where necessary, the record is corrected.
Most firms conduct the physical inventory for
financial reasons. However, it also has the effect of correcting
errors and improving cycle count programs. Within a few days, accuracy can increase, quickly and
dramatically to 98%+.
Then, as figure 2 shows, accuracy begins to
drop the moment operations resume. Transactions introduce
errors. At one year, accuracy will drop to the initial level, other
factors being equal.
Figure 2 shows an initial IRA of 63%. Such a low
figure is not too unusual. After the annual inventory in January,
IRA rose to about 99%. It then steadily declined to the original 63%
by the following December. This gives an overall average of about
80%.
This could be improved by taking a physical inventory
every six months. However, this is expensive and frustrating for
people. It still gives only a 90% average IRA and this is insufficient
for MRP/ERP systems. It is undesirable even in manual systems. |
Figure 2-IRA With Physical
Inventory
Doing It Right
The key to an efficient and effective physical
inventory is planning and preparation. Click here for more on
Physical Inventory Planning.
|
