What a physical inventory is and when it takes place
A physical inventory, also called a stock take or wall-to-wall count, is the count of all stock in a warehouse on one date. The result is compared with the system record, and each discrepancy is investigated and adjusted.
Companies run a physical inventory for three main reasons:
- Accounting and tax close. In Mexico, the Income Tax Law (Ley del Impuesto sobre la Renta, LISR) requires companies under the general regime to take an inventory of stock as of the last day of the fiscal year (article 76, section IV) and to keep inventory records under a perpetual inventory system (article 76, section XIV). The current text is available in the Income Tax Law published by the Chamber of Deputies, in Spanish. How to comply is a matter for your accountant.
- Audit. The external auditor usually observes the count and takes samples to validate the inventory balance in the financial statements.
- Restoring confidence in the record. When discrepancies have accumulated and the team no longer trusts the system, a complete inventory sets a new starting point.
If your warehouse already has a cycle count program, the annual inventory becomes a confirmation: it finds fewer discrepancies and takes less time.
How to prepare the inventory: the two weeks before
Most of the discrepancies in an inventory are determined before the count. Orderly preparation prevents counting the same goods twice or counting goods that have not yet been received.
| When | What to prepare | Why |
|---|---|---|
| Two weeks before | Date, schedule, scope and owner of the inventory; notice to customers and suppliers | Deliveries and orders are scheduled outside the count date |
| Ten days before | Location review: unique codes, readable labels, empty locations marked | A count by location requires reliable locations |
| One week before | Closing of pending receipts, transfers and returns | An open document appears as a discrepancy on the count day |
| Three days before | Put-away of received goods; damaged and expired goods identified and separated | Goods at the dock or without a location are difficult to count |
| One day before | Count teams assigned by zone, handhelds charged, read test | No time is lost on logistics on the count day |
| At the start | Document cutoff: receipts and shipments in the counted area are suspended until the count is closed | The record and physical stock are compared at the same moment |
How to run a physical inventory step by step
- Apply the cutoff. Record the cutoff time and stop receipts and shipments in the area being counted. If only part of the warehouse can be stopped, count by zone on different days and close each zone before opening the next.
- Divide the warehouse into sections. A section is a group of aisles or locations that one person or a pair counts from start to finish.
- Count by location. Scan the location, then each product, and enter the quantity, lot or serial number. Counting by location, in aisle order, prevents skipped locations.
- Do not show the expected quantity to the counter. Hiding the recorded quantity prevents the counter from merely confirming it.
- Recount every discrepancy with a different person. If the second count matches the record, the first count was a counting error; if it matches the first count, the discrepancy is real.
- Investigate before adjusting. Review the product's stock ledger, open documents and nearby locations: a shortage in one location and an overage in another usually indicate a wrong location.
- Adjust with a reason and approval. A person with authority applies the adjustments; each one carries a reason and remains in the history.
- Reopen operations in each zone as soon as its count is closed and adjusted.
- Deliver the file: count detail by location, discrepancies, second counts, adjustments and who approved them.
Count tags or scanning: how to record the count
Many Mexican warehouses run the inventory with marbetes: numbered count tags placed on each location or product, filled in by hand and entered later. The method works, but it adds two steps with a risk of error: writing and data entry.
With scanning, the handheld records the location, the product and the quantity at the moment of the count, and the result is compared with the record when each section closes. The tag numbers are replaced by a record of who counted each section and at what time. If your auditor requires count tags, agree with the auditor before the inventory which electronic record is accepted instead.
How much time and how many people are needed
The duration depends on the number of locations, the number of products in each one and the method. To estimate it, run a test in a representative zone a few days before:
- Count 50 locations with the method you will use and measure the time.
- Divide to obtain the time per location.
- Multiply by the total number of locations and add time for second counts (a practical rule is to reserve an additional 10% to 20%, depending on the expected accuracy).
- Divide by the number of available people or pairs.
The result shows whether the inventory can be completed in one day or whether it is better to count by zone over several days with the rest of the operation open.
Mistakes that lengthen an inventory
- Counting with open documents. A receipt that is not closed is counted physically but is not in the record, so it appears as an overage.
- Goods without a location. Goods left at the dock or in aisles are counted twice or not at all.
- Mixed units of measure. Counting cases where the system records units produces discrepancies in exact multiples.
- Adjusting the first count. Without a second count, a counter's error becomes an adjustment.
- Reopening before closing. If a zone that has not yet been reconciled is picked, its discrepancies can no longer be explained.
How Chainlink WMS handles it
In Chainlink, a physical inventory is a count that covers the entire warehouse or one zone at a time. It is created in Inventory › Counts › New, divided into sections, and each section appears on the handheld of the assigned operator. The count is performed by location, with the quantity, lot or serial number of each product, and it works fully without a signal, which helps in cold rooms and high racks.
On closing, Chainlink separates matches, wrong locations, overages, shortages and products not in the system, so that only what does not match requires review. Adjustments are applied by a user with an Administrative license, and each one is posted to the stock ledger with its document, user and time. In Professional and Enterprise, an RFID inventory reads each section with the RFD40 sled without scanning item by item. See counts and the guide on physical inventory with RFID.
Frequently asked questions
Does the entire warehouse have to stop for a physical inventory?
Not necessarily. When counting by zone, only the zone being counted stops, and it reopens as soon as it is closed and adjusted. What must not happen is goods entering or leaving a zone while it is being counted.
What is the difference between a physical inventory and a cycle count?
A physical inventory counts everything on one date; a cycle count covers a small part every day or every week, so that each product is checked several times a year. Many companies use both.
What is delivered to the accountant at the end?
The count detail by location and product, the discrepancies found, the second counts, the adjustments applied with their reason and who approved them. Confirm with your accountant the format and the cutoff required.