invsampling

You can design an acceptance sampling plan to signal when to undertake a total physical inventory count. Compared to taking a total inventory count at a fixed period (annually), sampling can provide you with more accurate record counts, cause less disruption of operations, and lower costs. The sampling plan involves a relatively small number of items at frequent periods.

The sampling plan itself is developed based on the Operating Characteristic Curve as a criterion to ensure that the sample size is sufficient and that the accept/reject decision rule matches your operating standard for minimum accuracy (i.e. 95%, 98%, etc.).

With sampling, you do not have to physically count the items for every part number every year, as long as the estimated accuracy of recorded counts is sufficient and the statistical margin of error of the estimate is sufficiently small. I know that in some leading companies, the accountants support this sampling practice.

By counting small samples frequently rather than performing total inventory counts annually, you can detect and correct record-keeping system problems early – using control charts.

In summary, the sampling approach can lead to sizable cost reductions. You conduct a total inventory only when the inventory book counts are sufficiently inaccurate to justify it. Combined with the application of control charts to the small but more frequent samples, you will discover special causes and improve the accuracy of the inventory recording process and the smaller samples are less disruptive of operations.