A physical inventory is the process of counting by hand the number of each type of product in your store at any given time. A physical inventory helps ensure that the stock on hand balances recorded on stockkeeping records match the quantities of products actually in the store. When conducting a physical inventory, count each product individually by generic name, dosage form, and strength.

There are two kinds of physical inventory:

Complete physical inventory: All products are counted at the same time. A complete inventory should be taken at least once a year. More frequent inventory (quarterly or monthly) is recommended. For large warehouses, this may require closing the storage facility for a day or longer.

Cyclic or random physical inventory: Selected products are counted and checked against the stockkeeping records on a rotating or regular basis throughout the year. This process is also called cycle counting.

A complete physical inventory is easier to conduct regularly at facilities that manage smaller quantities of products. Cyclic or random physical inventory is usually appropriate at facilities that manage larger quantities of products.

Cyclic physical inventory can be organized in many ways-

Dosage form: Count tablets in January, capsules in February, liquids in March, etc.

Location in the storeroom: Count shelves 1-4 in January, 5-8 in February, etc.

Time availability: Count a few items each day whenever staff have time.

Stock on hand: On a periodic basis, count each item for which stock on hand is at or below the minimum inventory level. This method may be faster, since there are smaller quantities to count.

If cyclic physical inventory is used, count each product at least once during the year. Count fast-moving items and full supply products more frequently.

Steps in conducting a physical inventory:

1. Plan.

For a complete physical inventory, schedule the day(s) and time.

For a cyclic or random physical inventory, identify which products will be counted and the corresponding time period for those products.

2. Assign staff.

3. Organize the storeroom.

Arrange products according to FEFO.
Make sure open cartons and boxes are visible.
Separate damaged or expired products.

4. Count the usable products.

Count products according to the units by which they are issued (e.g., tablet or piece) not by the carton or box.

Estimate quantities in open containers for products packaged in bulk. If a bottle of 1,000 capsules is 2/3 full, estimate 650 or 700 capsules. If you have a one liter bottle of syrup that is ½ full, estimate 0.5 liters.

5. Update the stockkeeping records.

Write the date of the physical inventory and the words “Physical Inventory.”

Using a different color ink, write the quantity of the product that you counted during stocktaking.

6. Take action based on the results of the physical inventory.

If the results of the physical inventory differ from the balance on the stock/bin card, update the balance by adding or subtracting the excess or missing quantities.

Dispose of damaged or expired products found during the physical inventory.

For either of the above, identify, document, and correct the cause of the problem.

7. Discuss the findings of the inventory with the facility staff.

Congratulate the staff, if appropriate.
Take corrective actions, if required.