Is it time to rethink your inventory counting strategy?

Introducing our NEW research proposal

Some retailers count every product once a year, while others aim to do it a couple of times.

One retailer has even moved away from an annual stocktake altogether, sending stores smaller lists to count each week.

But when retailers compared their inventory counting strategy at our research launch, the differences went well beyond frequency.

They gave different answers for who should count, how to check the results, and what should happen afterwards.

• Some described the stocktake as a financial requirement.
• Others put replenishment and sales first.
• Several wanted to spend less time counting stock that would turn out to be correct anyway.

These are substantial commitments of money and store time.

Yet the discussion exposed how much remains unsettled about the way retailers count, and how difficult it can be to show value from all that effort.

That is the starting point for our new study led by Professors Christoph Glock, Yacine Rekik and Aris Syntetos.

Building on questions set out before the research launch, the team will examine why practices differ, what makes a count credible and how retailers use the results.

The commercial ambition goes further to understand how counting can:

• support decisions that improve availability;
• reduce unnecessary inventory;
• and protect sales, while making better use of the money spent on the counting itself.

Five questions from the launch deserve particular attention.

1. What is the inventory counting strategy supposed to achieve?

A stocktake can serve several departments, each expecting something different from the same exercise.

• Finance needs confidence in the inventory value and the loss figure.
• Supply chain teams need stock records they can use for replenishment.
• Store colleagues need to know whether products are available to sell.
• Loss prevention teams want to understand where stock is disappearing and what might explain it.

While those needs overlap, they don’t necessarily use the same counting schedule or the same information.

Consider phantom inventory: the system shows stock that is no longer physically present.

If the recorded quantity keeps an automatic order from being placed, the shelf can remain empty until somebody identifies the error.

Correcting it at the annual stocktake may restore the record, but it cannot recover the sales already missed.

For another purpose, a complete count at a defined point in time may be particularly valuable.

One retailer explained that its full counts helped identify problems across products and stores, to give a clearer picture of shrinkage.

A targeted check of selected lines would answer a different question.

The research needs to separate these purposes and examine the requirements behind them.

Retailers at the launch meeting referred to legal, financial and audit obligations, but not every retailer faces an identical requirement.

The researchers will review relevant documents across several countries to understand the differences.

Participants also described counting arrangements that had become established over time, and tech/operational changes that might now make other approaches possible.

A familiar process can remain in place long after the reasons for choosing it have become difficult to explain.

An inventory counting strategy needs clear objectives against which it can be assessed.

If the business is spending money to improve availability, it should be able to explain how the chosen counts help products reach customers.

If the purpose is assurance, it should be clear what confidence the process provides and to whom.

2. Are retailers counting the stock that most needs attention?

Several participants wanted to count less while getting a better result.

Their frustration was with the time spent confirming stock records that were already correct, while other errors continued to cause problems.

• One retailer questioned whether its second full count of the year could focus more closely on the parts of the store where inaccuracies were expected.
• Another had replaced the annual exercise with smaller weekly counts.
• Others combined full stocktakes with departmental checks or corrections made during everyday store work.

The differences are useful research material.

They show the range of choices an inventory counting strategy can involve, without establishing that any one approach is best for everyone.

A count that finds no discrepancy can still provide valuable assurance.

It’s harder to prove whether that assurance required another physical count, or whether the business already had reliable evidence about the stock concerned.

One participant described work to capture information from routine colleague scans, including scans that led to no adjustment.

Those interactions might provide evidence that the record was correct at that moment.

Online picking, negative stock balances and products reaching zero stock were also discussed as potentially useful signals.

Such signals need interpretation.

• A scan without an adjustment does not prove that somebody completed a careful count.
• A product can also move, sell or disappear after it has been checked.
• The opportunity is to test how much confidence different observations deserve and how long that confidence remains useful.

Our published research on predicting inventory record inaccuracy provides a foundation for this work.

It shows that a substantial share of errors in the studied data can be predicted, creating opportunities to direct counting effort towards records more likely to be wrong.

The new project will examine how such possibilities fit with retailers’ operational needs and assurance requirements.

A mixed approach might retain a full count for one purpose while using targeted checks between counts for another.

The evidence needs to explain where that combination helps and what it requires to work.

3. How do retailers know the count itself is right?

The launch repeatedly returned to an awkward problem: the physical count used to correct the system can itself be wrong.

Somebody can miss an item, enter the wrong quantity or misunderstand what is being counted.

If that result replaces an accurate stock record, the exercise has introduced an error. A later colleague may then spend time investigating and correcting it.

Participants described several ways of checking results:

• comparing counts with existing records;
• investigating large differences;
• carrying out spot checks;
• requiring recounts;
• and asking stores to sign off the figures.

The research will explore how these controls operate and what makes them effective.

Checking only large discrepancies raises a useful question.

It can direct attention to material differences, but what happens when a wrong count looks plausible?

An inventory counting strategy needs a way to assess the quality of the counting process as well as react to its most obvious exceptions.

Responsibility matters too.

A store team may know where products are kept and recognise when a figure makes little sense.

That knowledge can improve verification. It also leaves a governance question when the same team maintains the records, checks the count and can change the outcome without independent review.

The discussion did not support a simple assumption that external counters are always better, or that store colleagues will necessarily be more accurate.

One retailer reported that bringing counting in-house had increased costs and reduced accuracy in its experience.

Others described established internal counting arrangements. Training, supervision and the checks around the work all need examining.

Technology could provide another source of evidence.

Retailers discussed RFID and camera systems as possible ways to support inventory accuracy or cross-check a physical count.

One participant reported that RFID had already helped reduce the frequency of traditional audits in its business.

These examples raise questions for the research rather than settle them.

Retailers need to understand:

• when a second source of information is reliable;
• whether it covers the same stock;
• and how conflicting results should be resolved.

Otherwise, an additional number may simply create another disagreement to investigate.

4. What changes because the retailer has counted?

Much of the commercial value depends on what happens after the count has finished.

Correcting a stock record can allow replenishment to resume.

The same count might expose a product setup error, reveal a recurring receiving problem or show that stock is sitting in a backroom while the shelf remains empty.

Those findings require different responses and often different owners.

One participant described how its audit distinguished stock on the shop floor from stock in the backroom.

A single store total could not provide the same insight into products failing to reach the shelf.

Another explained how count data helped examine availability and waste together, including where a department might be carrying too much stock.

These are useful examples of information supporting decisions.

They also explain why an inventory counting strategy should consider the data people need before designing the counting process.

Timing can affect its usefulness.

Participants described results becoming available overnight or during the trading day, with different opportunities for colleagues to check and correct them before they affected ordering.

A result delivered after the next order has been placed may have different consequences from one available beforehand.

The questions extend beyond whether the data reaches the right system.

• Who sees the discrepancy?
• Who investigates it?
• Can that person change the underlying process, or only correct the stock figure until the problem happens again?

The launch also exposed a practical difficulty in getting colleagues to complete stock routines.

One retailer described the challenge of helping stores see the benefit of the time involved.

The correction may be visible immediately, while its financial meaning or effect on future orders is harder to recognise.

That is worth investigating alongside the technology.

Asking a busy store colleague to count another list of products is easier to justify when the purpose is understood, and the result leads to a useful response.

A more sophisticated list will achieve little if the work is repeatedly left unfinished or the resulting information goes unused.

5. Does the benefit justify the cost?

This is the question that should connect the others.

A retailer can make counting faster and still struggle to explain its value.

It can also reduce the number of counts while leaving important errors undetected for longer.

The financial case needs to consider the consequences of the change alongside the cost of carrying it out.

Counting costs include more than the external provider’s invoice. Stores may need to:

• prepare stock;
• support the counters:
• investigate differences;
• and repeat work when the result is doubtful.

Where colleagues do the counting themselves, their time still has a cost and competes with other store tasks.

The benefits also need careful definition. A correction that reveals lost stock improves the record; it does not, by itself, mean that the loss has been prevented.

A count that allows replenishment to resume may support additional sales, but the retailer still needs to establish what changed and what contribution those sales made.

There is evidence that improving records can have commercial value.

Our 2020 study of the sales impact of correcting inventory records reported sales increases of approximately 4–8% in the participating retailers.

Those results come from specific study settings; they do not establish the return from every extra count or guarantee the same uplift elsewhere.

For an individual retailer, evaluating its inventory counting strategy means following the connection between an activity, a decision and an outcome.

A targeted count might identify phantom inventory, trigger an order and restore availability.

A different count might identify excess stock and lead to a change in replenishment.

The business needs evidence of those effects, alongside the resources used to achieve them.

If performance changes after a new counting routine is introduced, retailers will need to consider other changes happening at the same time before attributing the whole improvement to counting.

Seasonal demand, promotions or a separate replenishment change could also affect the result.

Counting more discrepancies is an activity measure; it does not establish how much value has been created.

The team also needs to examine when the next count is worth doing.

A recently verified, stable record presents a different case from a product with repeated discrepancies and strong demand.

That does not remove assurance obligations. Though it does help choose where to spend additional counting effort.

Our proposed new project will emphasise:

• how the information is used;
• what financial benefits follow;
• and how those benefits relate to the investment in counting.

The proposed interviews can explore how retailers assess these connections and where they lack evidence.

They are not a controlled trial designed to prove one universal return on investment.

How the research will examine inventory counting strategy

The study will bring together perspectives from retailers, inventory counting providers, auditors, professional advisers and legal or regulatory experts.

Each is likely to bring a different understanding of what a count needs to achieve and what makes its results acceptable.

The research team brings decades of expertise in inventory management, inventory inaccuracy and forecasting.

The proposal sets out approximately 30 interviews, with more if needed to understand the range of experiences.

These will be supported by a review of academic and practitioner literature and relevant legal, regulatory and industry documents.

The document review will initially focus on Germany, Greece, the UK, the USA and Australia; participation is open to organisations from other countries and retail sectors.

The aim is to explain the differences between approaches and help retailers assess their own choices.

The researchers do not expect to find one counting model that suits every business.

Planned outputs include an ECR report, a framework for understanding stock audit decisions, an academic paper and a workshop.

Practical guidance will develop from the findings. The project is planned to run for 12 months from the start of the research work.

How to take part in the study

The researchers want to hear from people who design, commission, carry out, check or use stock counts.

Within retailers, relevant experience may sit in finance, audit, store operations, supply chain or loss prevention.

Participation involves a confidential interview of approximately 45 minutes.

There is no need for any raw data to be shared.

However, relevant internal documents can be passed to the research team voluntarily, subject to confidentiality arrangements, and non-disclosure agreements can be signed where required.

To discuss taking part, contact Colin Peacock at colin@ecrloss.com.

Bring the difficult questions as well as the processes that work.

Understanding why a count creates work without a clear benefit may be just as useful as hearing about an approach that has improved performance.

Frequently asked questions

What is an inventory counting strategy?

An inventory counting strategy sets out why a retailer counts stock, which products or locations are counted, how often, who does the work and how results are checked and used.

It should connect the counting process with its financial, assurance and operational purposes.

Can targeted stock counting replace an annual stocktake?

That depends on the retailer’s circumstances and the requirements it must meet.

Participants described different arrangements, including weekly targeted counts and combinations of full and partial counts.

The research will examine where these approaches are appropriate; it does not start from the assumption that annual stocktakes should be replaced.

How can retailers assess the return from counting stock?

They need to identify the full cost of counting and follow what happens when discrepancies are found.

Relevant outcomes may include better availability, additional sales, less excess stock or less repeated work.

Improvements need to be linked to the counting intervention rather than assumed from a better accuracy figure alone.

Who can participate in the ECR Retail Loss research?

Retailers from any sector or country, counting providers, auditors, consultants and legal or regulatory experts with relevant experience are welcome.

Contact Colin Peacock to discuss a confidential interview. Participants do not need to have a finished solution or an exemplary counting process.

The research team

• Professor Christoph Glock, Technical University Darmstadt
• Professor Yacine Rekik, emylon Business School
• Professor Aris Syntetos, Cardiff University