New Year Inventory Audit: A Step-by-Step Guide

Why January Is Audit Season

After the intensity of peak season, your inventory data is at its least reliable. Thousands of orders shipped, hundreds of returns processed, emergency replenishments received — all create opportunities for discrepancies.

A thorough January audit gives you a clean starting point for the new year.

Step 1: Plan the Count

Timing

Choose a period of low activity — ideally early January before normal trading resumes. If a full shutdown isn't possible, count by zone over several days.

Resources

Counters: Ideally people who don't normally work with the stock (reduces bias)
Technology: Barcode scanners or tablets connected to your WMS
Documentation: Pre-printed count sheets or digital count lists by zone
Supervision: A count manager to resolve queries and maintain standards

Method

Method	Description	Best For
Full wall-to-wall	Count everything	Annual audit, small warehouses
Cycle count (intensive)	Count a large portion systematically	Larger warehouses, ongoing operations
ABC prioritised	Count A items fully, sample B and C	When full count isn't feasible

Step 2: Conduct the Count

Rules for Accurate Counting

Freeze stock movement during the count if possible
Count twice — independent counts compared for discrepancies
Don't count from the system — counters should not see expected quantities
Tag everything counted — visual markers prevent double-counting
Investigate discrepancies immediately — while context is fresh

Common Pitfalls

Counting goods-in areas that haven't been receipted
Missing stock in returns processing or quality hold
Counting the same pallet twice (upper and lower level)
Skipping hard-to-reach locations

Step 3: Reconcile

Compare physical counts against system records:

SKU	System Qty	Physical Qty	Variance	Value Impact
SKU-001	500	498	-2	-£30
SKU-002	1,200	1,200	0	£0
SKU-003	80	75	-5	-£250

Variance Thresholds

SKU-level variance >2%: Investigate immediately
Overall variance >1%: Concerning — suggests systemic issues
Overall variance <0.5%: Good — indicates strong processes

Step 4: Investigate Variances

For each significant discrepancy, determine the root cause:

Receipting errors: Goods received but not scanned in correctly
Picking errors: Wrong items picked, creating one short and one over
Returns not processed: Returned items sitting uncounted
Damage/disposal not recorded: Items removed but not deducted from system
Theft: The uncomfortable possibility that must be considered

Step 5: Adjust and Improve

System Adjustments

Update your WMS with accurate physical counts. Document every adjustment with a reason code.

Process Improvements

Use audit findings to fix root causes:

If receipting errors are common → improve goods-in scanning procedures
If picking errors → review pick verification processes
If returns are the issue → tighten returns processing workflows
If shrinkage is unexplained → review security measures

Working with Your 3PL

If you outsource warehousing, your provider should conduct regular stock counts and share results with you. For the annual audit:

Request a formal stock count report
Ask for variance explanations
Review shrinkage trends year-on-year
Discuss process improvements based on findings

At The Fulfilment Centre, we conduct regular cycle counts and annual audits, providing clients with full transparency on inventory accuracy.

Need support with your inventory audit? Contact our team to discuss stock management and accuracy reporting.