The Dirty Little Secret of Doing a Physical Inventory

Written By Eli Cohen

Why even the most diligent wholesalers are working with imperfect counts—and what to do about it

It’s that time of year again: warehouses are shutting down, teams are counting, and ERP systems are bracing for impact.

Yes, we’re talking about physical inventory.

But here’s the truth: unless you’re in a fully automated, barcode-scanned, robotics-enabled warehouse environment (and most wholesalers aren’t), your physical inventory count is never going to be 100% accurate.

And that’s okay—if you know how to manage it.

So What Do You Do When the Numbers Don’t Match?

Every company eventually runs into this: your ERP says 186 units in stock. The warehouse finds 183. Or 191. Or none at all.

What happens next determines whether your operations stay clean—or spiral into costly mistakes.

1. Set a Threshold for Small Variances—and Move On

The reality is that small differences happen. Most companies accept minor discrepancies (say, 1–2%) and simply make a final adjustment in the ERP to match what the warehouse sees.

Why? Because chasing down a 2-unit variance across 4 locations is almost never worth the time.

What matters is that your ERP and warehouse management system (WMS) are in sync—so you’re not selling phantom stock, or missing out on items you actually have.

2. For Larger Variances, Use the Audit Trail

When the difference exceeds your acceptable threshold, that’s when it’s time to dig in:

  • Send the warehouse the SKU-level audit trail for that item

  • Ask them to recount and check against their own transaction logs

  • If the product is found—great. If not, you may need to:

    • Request a credit from the warehouse

    • File a claim if there's a loss or damage

    • Update their system if it turns out the inventory was never deducted properly

This keeps accountability high without creating unnecessary drama over small errors.

3. Final Step: Lock in Clean Data

Once the dust settles, the most important step is syncing your systems. If the warehouse sees 5,000 units, your ERP should say 5,000 units.

Anything else creates confusion—and cascades into incorrect POs, late shipments, and more chargebacks than you can afford.

End-of-year is messy enough. Don’t drag bad inventory data into Q1.

Get clear. Get synced. Get real.

Need help cleaning up your inventory systems—or building a process your warehouse can actually follow?

That’s what we do at Business Data Solutions. Let’s talk.

Eli Cohen
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