Document Code LGT__WHD_QP05

Warehouse Operation
Version No. 1.0
Date Effective 12/22/2019
Physical Inventory Count Procedure
Page No. Page 1 of 9

Table of Contents

Table of contents ….……………………………… Page1

1. Specification of revision history ….……………………………… Page2
2. Distribution of copies ….……………………………… Page2
3. Purpose ….……………………………… Page3
4. Scope ….……………………………… Page3
5. Definition ….……………………………… Page3
6. Reference ….……………………………… Page3
7. Responsibilities ….……………………………… Page4
8. Process description ….……………………………… Page5
9. Operation Procedure ….……………………………… Page5
10. Procedure flowchart ….……………………………… Page7
11. Inventory Count Instruction ….……………………………… Page8
12. Reconciliation of Physical Count ….……………………………… Page8
and On hand Inventory Report
13. Quality Records ….……………………………… Page9
 Document Code LGT__WHD_QP05
Warehouse Operation
Version No. 1.0
Date Effective 12/22/2019
Physical Inventory Count Procedure
Page No. Page 2 of 9

1. Specification of revision history

Document Version Date Effective Details of Changes Page Originator/ Reviser

Code no. (Month/ Day/ Affected
Year

LGT_WHD-QP
1.0 December 22, 2019 New documents -
05

2. Distribution list

Process/
Name Position Date Signature
Department
Board Member

Logistic
QMS Representative
Warehouse
Quality Management
System/ Internal
Audit

Name Position Signature

Prepared by:

Master Copy Stamp

Reviewed by:

Approved by:
 Document Code LGT__WHD_QP05
Warehouse Operation
Version No. 1.0
Date Effective 12/22/2019
Physical Inventory Count Procedure
Page No. Page 3 of 9

3. Policy
General
 It is the policy of Al Bawani Warehouse Department that the company’s inventories are controlled and
target inventory accuracy is maintained. Thus, annual or periodic physical inventory are performed in
coordination with Internal Audit Department.
 The results of the physical counts are summarized, discrepancies are investigated, and necessary
adjustments are recorded to adjust the balances on the company’s records to reflect the results of the
physical inventory. Cycle counts or other periodic verification can be used in place of an inventory, as
long as they provide for the counting of all groups of inventory at least once during the year. In the event
Management/ Accounts Department elects to utilize cynical counts in lieu of complete inventory, the
concerned Department as instructed by the management is required to request and receive approval from
the Warehouse Head. The taking of physical inventory must be properly supervised and controlled by the
Accounting Department/ Internal Audit. At least one physical inventory should be taken in close
proximity to year-end and coordinated with the independent external auditors’ mutual agreement. The
Accounts Controller should notify the Warehouse Controller in cases in which the results of a physical
inventory requires significant SAR adjustments to the values on the accounting records
Objectives
 To ensure that target inventory accuracy of 95% is maintained.
 Annual/Periodic Physical Inventory Count is prepared.
 Annual/Periodic Physical Inventory Count are performed as per approved plan.
 Reconciliation of inventory discrepancies are performed immediately after the physical count.
 Audit findings are reported to management timely.
 Action plan on audit findings are prepared and acted upon by the Warehouse Department completely and
as per agreed timeline.
4. Purpose
 The purpose of this procedure is to provide guidance regarding the need to take regular physical
inventories of the Company’s materials stored at the warehouses across the Kingdom, and to ensure
proper balance sheet evaluation and recognition of cost of products sold. Also, to provide the Company
with an opportunity to maintain the accuracy of its perpetual inventory records.
5. Scope
 This procedure is applicable to Warehouse Personnel and Internal Audit Team who are responsible for
planning, conduct and reporting of the results of the physical inventory count for all Al Bawani
Warehouses.
6. Definition
Terms Definition

Is a process where physically personnel count manually all

Annual Physical Inventory
items and compare the counted quantities to the on-hand
quantities within company’s core business application
:
(Dynamics) in order to identify discrepancies. This is critical
in ensuring that the accounting records are complete and
accurate. These process is followed once a year.

It is perform covering physical inventory count of randomly

selected items as per the list from on hand inventory report.
Random check inventory : Further if any item is suspected during the audit of physical
inventory count those items will be considered for inventory
count apart from the list.

It is perform covering the100% physical inventory count as

100% complete check inventory : per all the items listed in “On hand inventory report”
generated from Dynamics ERP.

Is a method of inventory valuation that must cover all

Periodic Physical Inventory :
materials at least once a year (Cycle counts)
 Document Code LGT__WHD_QP05
Warehouse Operation
Version No. 1.0
Date Effective 12/22/2019
Physical Inventory Count Procedure
Page No. Page 4 of 9

Counters A team count members that perform the actual inventory

:
count.

7. Responsibilities
6.1 Supervisor/ Lead Auditor
- Extract the On hand inventory report from Dynamics as on inventory count date and take
out the physical quantity based on the warehouse code. Keep the columns which are
required for inventory count like Item number, Product name, Warehouse code and Insert
the column of Physical count and remarks in the inventory count sheet.
- Ensure that inventory sheets issued to counting teams(s) are sequentially numbered,
accounted for and returned after the counting process is finished.
- Assist the counters during the performance of inventory count.
- Ensure that all items have been counted and of any uncounted items found it should be
marked for further action.
- Report to the warehouse manager for any discrepancy in the item description identified.
- Verify the stock has been stored separately based on PO items, cash purchase and
materials received from other warehouse.
- Coordinate with the count teams and confirming the counts of materials is all completed
and check if there is any items pending in the inventory sheet after the inventory counted
activity is completed.
- Reconcile the physical inventory count with Dynamics ERP on-hand inventory report.
- Discuss with store keeper/ Warehouse manager regarding the differences and get clarified
by asking the material issuance request/ Material arrival which are not updated in
Dynamics as on physical inventory count date.
- Discuss with the warehouse manager/ Store keeper and getting the confirmation on the
variances. Obtain signature of warehouse manager/ store keeper on the stock count
statement with variances identified.
- Prepare the Internal audit report for the differences identified (Lead Auditor).
- Adjust the differences identified by Account department in the Dynamics ERP.
- Discuss the observations and issuing the Internal audit report with warehouse manager.

6.2 Count Team members

- Ensure the properly maintaining count sheets, legibly recording counts on sheets, and
initiating the count sheets.
- Ensure that all items for each designated area have been counted. If random selected items
then the counted items to be labeled with colored labels and all sheets issued are returned
to the supervisor.
- Ensure and maintaining confidentiality of the information obtained and independency of
work.
- Ensuring that all counters should perform counting by themself and not by any warehouse
staff/ labours.
- Do not accept or request any advises from any warehouse staff. For any queries refer to
the supervisor.
- Ensure that count sheet should be handed over to the supervisor only and not to handover
or share the details with store staff (maintain confidentiality of the information).

6.3 Warehouse Head/ Manager

- Provide full support to the inventory count team
- Ensure all facilities are available which are needed by the counting team to facilitate for
perform the inventory timely and effectively.

6.4 Store keepers

- Assist the counters for locating the materials stored in the warehouse.

6.5 Labours
- Help the count team in arranging and lifting the materials for inventory count.
 Document Code LGT__WHD_QP05
Warehouse Operation
Version No. 1.0
Date Effective 12/22/2019
Physical Inventory Count Procedure
Page No. Page 5 of 9

8. Process Description
INPUT PROCESS OUTPUT

Accounts/ Physical Inventory

Inventory Updated Al Bawani
Internal Audit Count Activities
Plan inventory Warehouses

DESCRIPTIVE STATEMENT:

The Supervisor/ Lead Auditor prepares the necessary documents for the conduct of inventory count. He prints the stock
list from the On-hand inventory (ERP Dynamic System) and endorses to Count Team Member (Counters). The Count
Team Member conducts the inventory by checking the actual count of items vis-à-vis the stock list. The discrepancies
found are evaluated, discussed with the store keeper and subsequent issue internal audit report to the Warehouse Head
for the action to be taken based on the raised concern and observation. The account department will adjust the
differences identified and update the inventory based on the inventory count activities carried out, the updated
inventory is printed out and submitted to the relevant authorities.

9. Operation Procedure
DETAILED ACTIVITY Responsible Reference documents
and records
8.1 Prepare the inventory count plan
9.1.1 Prepare the plan and necessary documents needed for the Internal auditors, Supervisor Physical inventory plan
inventory (i.e. inventory counting sheets)

Frequency of inventory is:

 Annual Physical count
 Random Check
 100% Check
 Periodic inventory (Cycle counts)

Items for Inventory are categorized as:

 Mechanical items
 Electrical items (includes power tools)
 Civil items (includes safety)

8.2 Prepare the inventory counting sheets

8.2.1 Prepare the inventory counting sheets and distributed to Internal auditors, Supervisor Inventory counting Sheets
the count team members.

Steps to prepare the inventory counting sheets

 Download the on hand inventory report from Dynamics-
ERP based on Warehouse code and location as on physical
inventory count date
 Club the quantities of same item which are available in
different warehouse code if the inventory count is for
Alkharj/ Hilltop warehouse location
 The items are to be categorized as Mechanical, Electrical
and Civil. The category of materials can be extracted from
the Dynamics”Release product” and link on On hand
inventory report.
 If physical inventory count is on Random selected items,
then the items will be selected based on the category, Value,
Rate and Quantities available in On hand inventory report.
 Print the downloaded On hand inventory count sheet which
has serial number, item number, product name, Model group
by including the columns physical count quantity and
remarks.
 Document Code LGT__WHD_QP05
Warehouse Operation
Version No. 1.0
Date Effective 12/22/2019
Physical Inventory Count Procedure
Page No. Page 6 of 9

DETAILED ACTIVITY Responsible Reference documents

and records
8.3 Perform the physical inventory counts
8.3.1 Perform the physical inventory counts and records actual Counters (Count Team Inventory counting sheets,
count on the stock list adjacent to the printed counting sheets. Member) Stock card
(Please refer to Inventory Count Instructions).
Put label or colored sticker for identification.
 Green sticker- Good/ usable items
 Red sticker- Not usable/ expired/ broken items
 Blue sticker- Stock in transit items
 Yellow sticker- Physical items not found in the inventory
list
8.3.2 Any issues and unaccounted items encountered during
the activity must be recorded in the count sheet.
8.3.3 Give full support ensuring that facilities are available to
perform the inventory count and give assistance in locating the Warehouse Head,
items/ materials during the inventory counts Store keeper/ manager
8.3.4 Give assistance in arranging and lifting the materials for
inventory count Labour

8.4 Hand over the counter sheet

8.4.1 Return or hand over the count sheet to supervisor/ lead Counters (Count team Inventory counting sheets
auditor and maintain the confidentiality of the information member)
after the activity conducted.
8.5 Reconcile the inventory
8.5.1 Reconcile the inventory based on the actual physical Supervisor/ Lead auditor Inventory counting sheets
count recorded in the counting sheets from the records in the ERP Dynamic system
ERP Dynamic system. (Please refer to Reconciliation of
physical count and on hand inventory report)

8.6 Discuss discrepancy on inventory

8.6.1 Discuss discrepancy on inventory with the storekeeper Supervisor/Lead auditor Inventory counting sheet/ On
based on actual records gathered. hand Inventory Report

 Update the inventory based on the inventory activities Store keeper/ manager/ Dynamics ERP
carried out or adjust the difference noted in the Dynamics Account
by accounts.

 Issued Internal audit report for the corrective action based Internal Quality Audit
on the observation. Lead auditor Report

8.7 Retain documented information

8.7.1 Retain documented information based on Document Internal Auditor QP3
and Record Control Procedure.
 Document Code LGT__WHD_QP05
Warehouse Operation
Version No. 1.0
Date Effective 12/22/2019
Physical Inventory Count Procedure
Page No. Page 7 of 9

10. Procedure flowchart

 Document Code LGT__WHD_QP05
Warehouse Operation
Version No. 1.0
Date Effective 12/22/2019
Physical Inventory Count Procedure
Page No. Page 8 of 9

11. Inventory Count Instructions

I. Annual Physical Inventory Count Instructions
1. The physical inventory should be supervised and controlled by members of the business units, Accounting and
Operations management teams.
2. Warehouse operations may need to be significantly or temporarily suspended.
3. Instructions to participants, who are involved in the physical inventory process, should be in writing and include:
a) Location, date, and start time
b) Team designation and roles of key team members
c) Assignment of teams to specific areas.
d) Detailed instructions on how to complete the recording of the physical inventory.
e) Guidance on how to designate suspect inventory for the later review as to obsolescence, damage, or scrap.
f) Identification of inventory designated as customer property awaiting shipping instructions (in cases in which
the inventory is physically segregated)
4. Inventory should be maintained in a manner that facilitates physical counting and should be conducted by personnel
who are familiar with the inventory being counted.
5. All sheets used during the physical count should be recorded with physical count number. A process, such as
sequential numbering, should be utilized to assure all physical inventory documents are accounted for.
6. Ensure that all items locations are clearly identifiable.
7. Remove any hazards in the warehouse that could be dangerous during the count (e.g. boxes, items that could fall, etc.)
8. Count good, usable items during the physical inventory and record count on sheet.
9. If count is random selected items mark it with a green stickers.
10. If counter find items that are not usable/ expired/ broken, set them aside mark them it with a red sticker and take
photos and mention in the count sheet remarks column.
11. If counters find items that are kept at separate area for “ Stock in Transit”, count and mark it with a yellow sticker.
12. If counter are unsure about anything, supervisor be there for assistance.

II. Periodic Physical Inventory Count Instructions

1. Must cover all inventories at least once a year. They may be more frequent at the discretion of the Business unit/
Accounts Controller.
2. Perpetual inventory records must be up to date.

III. Instructions on Conducting the Physical Inventory

1. Do not move material while people are counting
2. Each count team member should count items, record the counts on count sheets and stick the count stickers to the item
location.
3. Ensure proper control over inventory list sheets
4. Inventory list sheet issued to counting teams are sequentially numbered, accounted for and returned to supervisor after
the counting process is finished.
5. Record item count quantities on the sheets and physically place a count sticker at each item’s location.
6. Count sticker should include:
 Date
 Item number
 Quantity
 Count Sheet number

IV. Physical Items in Location not Listed on Inventory Sheet

If the warehouse is physically storing an item but if there is no supporting documents and not recorded the item in the
ERP software, please follow these steps to correct the software and properly record the item’s location and quantity.
1. Request the blank inventory count sheet from the supervisor
2. The counter should fill out the blank inventory count sheet and mark it with blue sticker.
 Fill out the information legibly
 Include the item no., item name, location, counted quantity and comments on the count sheet. Take photos
3. The counter should return the blank inventory count sheet with signature to the supervisor
12. Reconciliation of Physical Count and On Hand Inventory Reports
1. The physical inventory quantities should be reconciled promptly with the On hand inventory reports. A recap of
differences should be developed showing the item number. Product name, Warehouse code and location, Cost per unit,
On hand inventory quantity, Physical count quantity, Differences between on hand inventory versus physical count,
value on difference quantity.
 Document Code LGT__WHD_QP05
Warehouse Operation
Version No. 1.0
Date Effective 12/22/2019
Physical Inventory Count Procedure
Page No. Page 9 of 9

2. The on hand inventory records should be adjusted for significant variances as compared to the physical quantities
counted.
3. All differences to be investigated
4. Items that were identified as questionable value should be reviewed and adjusted to reflect their realizable value.
5. The accounts Controller should be advised of differences that result in the adjustments to the inventory values on the
business unit’s books.

13. Quality Records

All records pertaining to this procedure shall be maintained in accordance with Control of Documents
and Records Procedure (QP03)

Storage (Hard
Retention
D.I. Code D.I. Title Retained By copy/
Period
Electronics)

On Hand Inventory Report- Concerned

N/A 2 Years Hard copy
Dynamics ERP Department

Reconciliation Report between

Concerned
N/A Physical count with On hand 2 Years Hard copy
Department
inventory report

QF07-03 Internal Quality Audit Report 3 Years QMS (IA) Department Hard copy