Top 10 Reasons Organizations Are Conducting Physical Inventory

  1. Regulatory Compliance- The number 1 reason we find that our customers need to conduct a physical inventory is regulatory compliance. Compliance issues vary depending on the organization, and can include; audit, Sarbanes Oxley (SOX) compliance for fixed assets, and GASB statements 34 and 35.While the rules and regulations vary for different organizations, the core principal is the same; organizations need to account for their fixed assets, particularly the impact they have on the balance sheet. Improper accounting for fixed assets can lead to misstating of the balance sheet, and can result in significant fines, failure of audit, and even imprisonment.
  2. Improve IT Support- ITAM, or Information Technology Asset Management covers a broad range of processes throughout the IT asset life cycle. Effective IT support and management requires current, accurate data related to IT assets. Conducting regular physical inventories of your IT equipment and properly managing and maintaining IT databases will keep your data up-to-date and lead to improved IT support.
  3. Baseline Inventory- Many organizations have never conducted an inventory or made any real efforts to track or manage their assets. This is typically more common amongs mid-size organizations experiencing rapid growth, however is certainly not limited to them as we have encountered very large organizations in the early stages of their asset management program. A baseline inventory consists of conducting a wall to wall inventory of assets, from scratch, and is used to track and manage assets.
  4. Implementing an Automated Asset Management System- Physical inventory is a small, but crucial component of a larger initiative, such as implementing an asset management solution. A full asset management solution typically incorporates the purchase of an asset management software application and deployment of automatic data capture technologies (such as barcode, RFID, and GPS). These systems are useless without having an accurate inventory database to populate them.
  5. Sale/Purchase/Transfer of Assets- As assets transfer ownership, if not required by both parties, at a minimum, the party that will receive the assets will require a complete physical inventory so they know exactly what they are paying for. It is quite common for a fair market value, or value in place valuation be done on the assets as well. The results are then used to negotiate the Purchase and Sale Agreement.
  6. Annual Inventory- Many organizations conduct an annual physical inventory, as a proactive measure, and as dictated in the guidelines of their asset management program. These organizations reap many of the benefits identified within this post.
  7. Appraisal/Valuation for Insurance and Taxes- Performing a physical inventory and asset appraisal to establish market value ensures that an organizations insurance policy covers replacement costs. It can also reduce property taxes as it is all too common to be depreciating ghost assets. Ghost assets consist of asset found on the fixed asset register (and consequently, the balance sheet) that are no longer in possession of the organization for any number of reasons, such as disposal or sale. Ghost assets can drive up insurance rates and property taxes.
  8. Better Asset Utilization- Knowing what you have, where it is, and the condition it is in allows you to make informed decisions about purchasing new equipment, redeploying idle equipment, and disposing of end of life equipment. This can lead to significant savings in making unnecessary capital purchases.
  9. Theft/Loss Prevention- Conducting a physical inventory and affixing barcode and/or RFID labels to your equipment makes tracking and managing assets much easier. Having an itemized list of equipment, assigned to a location and a custodian will greatly minimize the likeliness of theft or misplacement of assets.
  10. Improve Efficiency- Within the environment where workflow is not a measured or predictable thing, anything you can do to save time and improve flow will make the process more efficient and therefore save money.

Within an environment with predictable workflow, tracking improves the organizations ability to gather and react to real time information regarding delays or bottlenecks. Or, to single out specific items that suddenly require immediate action, within the flow at any given point and time.

Current, reliable information is necessary to improving workflow as well as overall asset management. Gathering and maintaining information can be expensive and error-prone. Whenever the organization can move product or provide services more quickly, reliably, greater throughput is achieved. Greater throughput usually produces savings or enhanced revenue.