A customer orders 200 units of your flagship product. Your system says you have 350. You ask the warehouse to confirm and discover only 40 remain.
That gap between what your system says and what you actually have is called an inventory discrepancy, and it costs Mexican SMEs millions every year.
The 2025 Logistics Barometer confirmed that 43% of SMEs do not know how much inventory they have in real time.
The main reason: they do not know how to take inventory correctly, from planning through accounting adjustments.
In this complete guide you will learn:
- The 8 steps to take inventory
- The 3 main methods (physical, cycle, perpetual)
- The tools you need
- The most common mistakes and how to avoid them
- A step-by-step practical example
Taking inventory is the process of counting, verifying, and recording all assets a company owns at a given moment, classifying them by type, location, and value, to compare actual physical stock with system records and make accounting adjustments when needed.
What Is Taking an Inventory?
Taking inventory (also called stocktaking, physical count, or physical inventory) is the systematic process of counting, verifying, and recording all assets a company owns at a given moment.
The goal is to compare actual physical stock with system records (general ledger, WMS, ERP) to identify discrepancies and make adjustments.
The full process includes:
- Physical count. count each product in its actual location
- Verification. confirm codes, descriptions, and quantities match
- Recording. capture results in the system (manual or automated)
- Reconciliation. compare physical vs. system and analyze differences
- Accounting adjustments. update records to reflect physical reality
When Is Inventory Taken?
- • Full physical inventory. typically 1-2 times per year (fiscal year-end, accounting close)
- • Cycle counting. rotating counts by zone (weekly or monthly depending on turnover)
- • Perpetual inventory. continuous real-time updates (no large physical count required)
- • Ad hoc inventory. when there are suspected discrepancies, detected theft, or management changes
8 Steps to Take an Inventory
This is the full process, from planning through final accounting adjustments. Follow these steps in order to maximize accuracy and minimize errors.
Plan the Inventory
Define the date, schedule, scope (entire warehouse or specific sections), counting method, and required resources (staff, tools, estimated time).
Planning should consider: operational shutdown (if applicable), availability of trained staff, required tools (scanners, tablets, count sheets), and estimated time (typically 1-5 days depending on size).
Prepare the Area
Organize the warehouse: group similar products, clean work areas, identify and separate damaged or obsolete products, and ensure good lighting.
A disorganized warehouse creates errors. Group SKUs by category, clear aisles, identify products with missing or damaged labels, and separate merchandise that should not be counted (under repair, pending returns).
Organize the Team
Assign staff by zone, provide brief training on procedures, distribute tools (scanners, count sheets), and establish communication channels.
Divide the warehouse into logical zones (A, B, C, etc.). Assign 2 people per zone (one counts, one verifies). Train on: how to read codes, what to do with discrepancies, how to report issues. Establish a central coordination point.
Perform the Physical Count
Count each product in its location, verify barcodes, record quantities and units of measure, and document damaged or problematic products.
Process: (1) Identify location and SKU, (2) physically count each unit, (3) verify the barcode matches the product, (4) record quantity and unit (pieces, boxes, kg), (5) mark the location as "counted". If there is a discrepancy, count twice and document it.
Record the Data
Enter results in the system (WMS, ERP, Excel), verify that all SKUs are recorded, and ensure there are no duplicates or omitted products.
Use barcode scanners when possible to reduce errors. If manual, use pre-printed count sheets with SKUs listed. Verify that each location has its record. Mark products as counted vs. Not counted.
Verify and Reconcile
Compare the physical count with system records, identify discrepancies (differences between what was counted and what the system shows), and investigate causes.
Formula: Difference = Physical Quantity - System Quantity. If difference > 0 = surplus; if < 0 = shortage. Investigate causes: theft, data entry errors, unregistered products, undocumented shrinkage. Document each discrepancy with a probable reason.
Analyze Discrepancies
Classify discrepancies by type (theft, data entry error, shrinkage, unregistered product), calculate financial impact, and determine corrective actions.
Typical categories: (1) theft/undocumented loss, (2) system data entry error, (3) natural shrinkage (perishables), (4) in-transit products not registered, (5) picking/storage errors. Calculate the value of each discrepancy and prioritize actions.
Adjust Accounting Records
Make adjustments in the accounting system, update inventory balances, record gains or losses from differences, and document everything for audit.
Accounting adjustments: (1) update the Warehouse account with actual physical balances, (2) post differences to Inventory Adjustments, (3) if there are losses, record them in Expenses (shrinkage, theft), (4) document in the inventory report for tax audit. Keep evidence of the physical count.
Pro tip: Do not try to do everything in one day. A full inventory typically takes 1-5 days depending on size. It is better to do it right in 3 days than wrong in 1. Accuracy matters more than speed.
3 Counting Methods: Physical vs Cycle vs Perpetual
Not all inventories are done the same way. Choose the method based on your size, turnover, and resources:
Physical Inventory
Cycle Counting
Perpetual Inventory
| Method | Frequency | Process | Best for | Typical Accuracy |
|---|---|---|---|---|
Physical Inventory | 1-2 times per year | Full count at a specific time | Small businesses, stable inventories | 85-90% (degrades over time) |
Cycle Counting | Rotating (weekly/monthly) | Count by zone on rotation | Large warehouses, high turnover | 95-98% (with good execution) |
Perpetual Inventory | Real time (continuous) | Automatic update with each movement | High turnover, multiple channels | 99.5%+ (with proper technology) |
Recommendation: For most SMEs, starting with an annual physical inventory is enough. If you grow and have high turnover, move to cycle counting. If you have multiple channels and budget, consider perpetual inventory with physical validation 1-2 times per year.
Tools for Taking Inventory
From paper and pencil to automated systems. Choose based on your budget and needs:
Paper and Pencil / Count Sheets
Excel / Google Sheets
Barcode Scanners
WMS / ERP with Inventory Module
| Tool | Cost | Typical Accuracy | Best for | Limitations |
|---|---|---|---|---|
Paper and Pencil | $0-100 MXN | 85-88% | Very small businesses (< 50 SKUs) | Error-prone, slow, hard to reconcile |
Excel / Google Sheets | $0-500 MXN/month | 88-92% | Small businesses (50-200 SKUs) | Manual, prone to data entry errors, does not scale |
Barcode Scanners | $2K-15K MXN (hardware) | 95-98% | Mid-size warehouses (200-1000 SKUs) | Requires barcoded products, upfront investment |
WMS / ERP | $5K-200K MXN/month | 99.5%+ | Mid-size/large companies (1000+ SKUs) | High cost, training required, complex implementation |
5 Common Inventory Counting Mistakes
Trying to count in a disorganized warehouse leads to major errors. Mixed products, wrong locations, and poor housekeeping make accurate counting difficult.
Increases errors by 40-60% and counting time by 2-3x
Counting similar but different products (different SKUs, variants, sizes) as if they were the same. Example: counting "Blue T-Shirt Size M" as "Blue T-Shirt Size L".
Creates false discrepancies and distorts actual balances
Confusing units: counting boxes as pieces, kg as units, or failing to convert correctly. Example: recording "10 boxes" when each box has 12 units = 120 pieces.
10-100x quantity errors, affecting purchasing and sales
Not counting products in every location: forgetting returns areas, products under repair, goods in transit between locations, or items in temporary areas.
Underestimates actual inventory, causing stockouts
Finding differences but not investigating causes or documenting them. Adjusting numbers without understanding why there was a discrepancy, missing the chance to improve processes.
Problems repeat; no organizational learning
Practical Example: Inventory in a Distribution Warehouse
A cleaning-products distributor in Guadalajara with 800 SKUs runs an annual physical inventory. Here is how they execute the 8 steps:
Inventory Schedule
- Date: Saturday, February 15, 8:00 AM
- Scope: entire warehouse
- Method: physical count with scanners
- Team: 8 people (4 count, 4 verify)
- Estimated time: 6 hours
- Pre-printed count sheets with all SKUs
- Group products by category (detergents, disinfectants, mops)
- Clear aisles
- Identify 15 products with damaged labels (re-labeled)
- Separate 8 boxes of obsolete products (not counted)
- Warehouse is ready for counting
- 15-minute meeting
- Assigns zones (A: detergents, B: disinfectants, C: accessories)
- Explains procedure: count, verify code, record
- Distributes scanners and count sheets
- Central coordination point: manager's office
Teams count zone by zone. Zone A example: they find 450 boxes of detergent (system says 480).
- Verify barcodes
- Confirm the unit (boxes of 12 units)
- Record in the scanner; if in doubt, count twice
- End result: 800 SKUs counted, 6 hours total
- Scanner data is uploaded to the WMS
- Manager verifies that all SKUs are recorded (800/800)
- Identifies 3 products that were not counted (returns area; added manually)
The system compares physical vs. records: 45 discrepancies found (5.6% of total). The manager investigates each one.
- Detergent: physical 450, system 480, difference −30
- Disinfectant: physical 320, system 300, difference +20
- 20 from data entry errors (corrected in system)
- 15 from undocumented theft ($3,500 MXN; recorded as loss)
- 10 from in-transit products not registered (adjusted)
- Total impact: $8,200 MXN in differences
- Updates the Warehouse account with actual physical balances
- Records $3,500 in Expenses (theft)
- Corrects 20 data entry errors
- Generates an inventory report for audit
- Final accuracy: 94.4% (45 discrepancies out of 800 SKUs)
Outcome: Inventory was updated with actual balances. Problems were identified (theft, data entry errors) and now have corrective actions. The next inventory should be more accurate thanks to the improvements implemented.
Key takeaways5 points
- 43% of SMEs do not know how much inventory they have in real time. Taking an inventory correctly is essential to avoid losses from stockouts or overstock.
- Taking an inventory is the process of counting, verifying, and recording all assets a company owns at a given moment, classified by type, location, and value.
- The full process includes 8 steps: planning, preparation, team organization, physical count, recording, verification, discrepancy analysis, and accounting adjustments.
- There are 3 main methods: physical inventory (periodic full count), cycle counting (rotating counts by zone), and perpetual inventory (continuous real-time updates).
- The most common mistakes include not preparing the area, counting the wrong products, not verifying units of measure, skipping locations, and not documenting discrepancies.
How Does OCL Cargo Simplify the Inventory Process?
Frequently Asked Questions
Taking an inventory is the process of counting, verifying, and recording all assets a company owns at a given moment, classified by type, location, and value. The goal is to compare actual physical stock with system records to identify discrepancies and make accounting adjustments.
Time varies by size: small businesses (50-200 SKUs): 2-4 hours; mid-size (200-1000 SKUs): 1-2 days; large (1000+ SKUs): 3-5 days. Factors include warehouse organization, available tools (scanners vs. Manual), team size, and whether operations are shut down.
Recommendation: 2 people per zone (one counts, one verifies). Small warehouse (50-200 SKUs): 2-4 people; mid-size (200-1000 SKUs): 6-10 people; large (1000+ SKUs): 12-20 people. More people means faster counting but requires better coordination.
Physical inventory: full count of the entire warehouse 1-2 times per year (usually requires shutting down operations). Cycle counting: rotating counts by zone (weekly/monthly, does not interrupt operations). Perpetual inventory: continuous real-time updates with each movement (no large physical count required, but periodic validation is needed).
Yes, with cycle counting (counts by rotating zones) or perpetual inventory (continuous updates). A full physical inventory typically requires shutting down operations for 1-2 days to avoid movements during the count that create discrepancies.
Minimum: paper, pencil, and count sheets (accuracy: 85-88%). Better: Excel/Google Sheets (88-92%). Ideal: barcode scanners (95-98%) or WMS/ERP (99.5%+). The right tool depends on your budget, inventory size, and accuracy needs.
Step 1: Verify the count is correct (count twice if in doubt). Step 2: Investigate causes (theft, data entry errors, in-transit products, shrinkage). Step 3: Classify by type and calculate financial impact. Step 4: Make accounting adjustments (update balances, record losses if applicable). Step 5: Document for audit and define corrective actions.
Depends on the method: full physical inventory: 1-2 times per year (fiscal year-end, accounting close). Cycle counting: rotating (A products: weekly, B: monthly, C: quarterly by turnover). Perpetual inventory: physical validation 1-2 times per year (the system updates continuously).
Formula: Accuracy = (SKUs without discrepancy / Total SKUs counted) × 100. Example: you counted 800 SKUs, 45 had discrepancies, accuracy = (755/800) × 100 = 94.4%. Target: 95%+ for physical inventory, 99.5%+ for perpetual inventory.
A count sheet is a document (paper or digital) listing all SKUs to count with space to record physical quantities. It includes: product code, description, location, system quantity (for comparison), physical quantity (to fill in), and notes. It streamlines the process and reduces omission errors.
Sources and References
- • IMCP - Mexican accounting standards (NIF C-4) on inventories
- • Harvard Business Review - Inventory management strategies
- • 2025 Logistics Barometer - Alvarez & Marsal, ConaLog, GS1 Mexico, IPADE