Book stock and physical stock always diverge over time โ breakage, loss, unrecorded movements, wrong picks. Physical inventory finds the difference and brings the books back to reality.
Counting methods
| Method | What it is | Advantage | Drawback |
|---|---|---|---|
| Periodic count | Count everything at period end | A clean cut-off date | Operations must stop |
| Cycle counting | Spread counts across the year | No shutdown | Needs designing |
| Continuous | Count when stock reaches zero | Low effort | Limited applicability |
| Sampling | Count a sample and infer statistically | Least effort | Requires statistical assumptions |
Period-end counting remains common in Japan, but companies with large material ranges increasingly use cycle counting to keep accuracy without halting work.
The process
| Step | Activity | Code | What happens |
|---|---|---|---|
| 1 | Create the inventory document | MI01 | Name the materials and storage locations |
| 2 | Print count sheets | MI21 | Produce the paperwork |
| 3 | Count | โ | Physically count |
| 4 | Enter the count | MI04 | Record what was found |
| 5 | Review differences | MI20 | Compare book and physical |
| 6 | Recount if needed | MI11 | Where differences are large |
| 7 | Post differences | MI07 | Adjust book stock to physical |
Posting the difference
Dr Inventory loss 50,000
Cr Raw material inventory 50,000Large differences deserve investigation. Differences concentrated in particular materials or locations usually point at a process problem there.
Designing cycle counting
| Class | Share of items | Share of value | Frequency |
|---|---|---|---|
| A | about 10% | about 70% | Four times a year |
| B | about 20% | about 20% | Twice a year |
| C | about 70% | about 10% | Once a year |
Concentrating effort on high-value items keeps accuracy achievable with limited staff. The ABC indicator sits on the material master plant view, and MIBC selects what is due.
Counting special stock
Consignment stock and components at subcontractors also have to be counted, and because they are special stock the inventory document must be created with the appropriate special stock indicator.
Components at a subcontractor are your asset and appear on your balance sheet, so their existence has to be verified โ by asking the processor to count, or by visiting, depending on how material the value is.