Counters And Managers

     During my days with Quantum, I remember hearing talk about the concept of little "c" and Big "C". This is the idea that there exists two conceptions of who the client is an inventory audit. On one hand you have Big “C” who represents the top level or corporate interests in the audit, and on the other hand you have little “c” who represent the store level or district level management who usually are the subjects of an audit. This idea seems to exist for practically any company, the notion that you have a set of corporate officers with goals and desires, making decisions about the company that have an impact on the workers who represent the company at the ground level. This concept certainly exists for inventory services as well. It's not hard to see the corporate desires of a company like RGIS. Their desires cascade down through the levels of middle management so well intact, that they can effect the way people literally count the merchandise and perform their job. In this case small “i” can represent not just counters, but anybody in an organizational unit (district or division) responsible for doing the work required for the client. The responsibility of “C” seems to be to make sure that “c” is doing their best to meet their corporate needs (in most cases that means generating profits). In order to do this “C” are required to analyze the performance of “c” to ensure that these corporate needs are being meet, and will continue to be meet in the future. A part of their analysis includes performing inventory audits on the stores managed by “c”, and this is where “I”, and “i” come into play.


     In cases where bad audits occur, the person responsible is ultimately going to be “c”. While "C" may be tasked with making sure little "c" is meeting their goals, an inventory audit is ultimately about "c", whatever happens at the store, the local manager is responsible. It is the goal than of c to keep their corporate counterparts happy and content with their work, and to hopefully avoid any negative attention from "C" something a bad audit would likely bring. Similarly “i” also wants to keep “I” happy as well. Thus you have a environment where all “c” wants to do is to be on C’s good side by generating profits, performing well, and by having good audits, and all “i” wants to do is to generate profits for “I”, by posting good averages, and keeping costs down. The aims of c and “i” are definitely not mutually exclusive, in fact in many cases they can both be simultaneously achieved very easily. When we look an inventory audit perhaps it would be interesting to analyze the roles and parts that each of the participants plays namely, “I”, “i”, C and c.

     You may read about all types of stories of audit fraud from Jack Henry or from anti-RGIS blogs and after awhile you have to start to wonder how some of these people are able to get away with some of this stuff. How are people able to get away with just counting one shelf, or one checkout stand and estimating the rest? How are people able to get away with all sort of counting shortcuts, and with systematic padding of inventories that occurs over a period of time? The easy answer is that they are allowed to get away with it. I spent a year and a half working internally for a convenience store company traveling all over Illinois during inventory audits at their stores. The one thing I noticed was how important shrink numbers meant to the managers I worked alongside. My goal with this position was to do high quality work, to be extremely accurate, and through, and to perform my duties with some integrity, (something some of my predecessors did not have much of). While I’m sure the managers did respect the way I performed my job, and the effort I put into it, at the end of the audit, only one thing mattered and that was the shrink percentage. The company goal was to have audits under 1%, and one manager summed up it best, he said in regards to the shrink percentage, “As long as the first number is 0, I’m happy”. (Note that shrink percentages were expressed to 2 decimal places, ex: -0.74%) To illustrate how important these numbers meant, one day I tallied the shrink percentage that was less than 1%, and this caused the manager to literally throw her arms around me and give me a bear hug saying “Thank you”. On the flip side of this, I once tallied a shrink number so bad, it brought another manager to tears. Another great story involved a district manager; I had done 2 of his stores on 2 consecutive days. The audit on the first day was over 2% which was not very good, I was on the phone with the DM on the next day, telling him that day’s audit was under 1%, which made him happy, he said to me “Greg, have I ever told you how good of a job you do?”. Half-joking I replied, “Well you didn’t say that to me yesterday”. Such is the life of an inventory counter, the court of public opinion will rise and fall with those shrink numbers. There are probably some managers out there who believe that any bad audit they get is the result of bad counters, (regardless of the validity of such a claim). A lot of managers will still dread an inventory audit, and there are a lot that don't care for inventory counters and what they do. Still others may turn towards a counter for some help, a little boost here and there to help make their audit look a little better. At the root of a lot of collusion cases is the desire for the manager to make themselves look good for corporate, and when the inventory counter has a similiar aim in mind, that's when you have the recipe for collusion.

     What c wants out of an inventory audit more than any other thing is a good shrink number. Granted this is not to say that c doesn’t care completely about inventory counting accuracy or inventory counting integrity. The thing is when there's an audit with a bad shrink number, this is usually the time when a manager will question the accuracy of the count. A manager questioning a counter’s accuracy when the shrink number is good, is rare, and I mean really rare. Confronted with a good audit, most managers will not think too hard about how an auditor actually counts certain things in a store, or about how good the counts really are. A good audit means they will escape the scrutiny of corporate, and live to see another day. Why would any manager argue that a count should actually be worse than it actually is? And just as there will be counters who try to cheat a little to boost their average and make their performance look better for corporate, don’t think that there don’t exist managers who try to tip the scales in their favor during an audit. I’ve seen managers move stuff around during an audit, keep invoices off the book before an audit, post date invoices, attempt to get credit for writing off merchandise multiple times, all sorts of wonderful things. One of my favorites was this one manager, who had received a bad audit in his eyes, and asked for another count. In both instances the manager knew the date and time of the count, and before the second count he went around his store and priced everything up to absolutely ridiculous levels. I think an 8.3oz can of Red Bull got marked at like $3.99. The audit crew at this store didn’t believe some of these prices and were scanning the product with a price gun much to the manager’s dismay. When the crew leader called me to tell me what had happened, I instructed her to take the price off the gun. I’ve also have heard plenty of stories of “off the book transfers” of merchandise between stores when there’s audits taking place, one time I even witnessed a manager from another store drive up to an audit that was taking place and dump 4 totes of merchandise for us to count saying that this stuff had already been transferred and that we needed to count it. Another story involved a grocery store chain, that we counted during my days with RGIS. For this client we would do numberous recounts for practically every store that we did. At each store we would hand our recounts to a DM, who would go through and choose which count to take. Every single time the DM would circle the higher number. It didn't matter to him wheather the higher number came on the recount (which would indicate growing shelf stock) or on the original count, all that mattered to him was getting the higher number. There are a lot of situations where managers need higher numbers, and they will do a little more than nudge counters citing mantras like "count it high or go home". Perhaps though for inventory counters higher numbers aren't necessarily a bad thing either.

     Counters are trained, and for the most part conditioned, by audit companies to be above all else fast. This training includes not just being able to handkey and cut a few corners here and there, but also having a quick wrap up to end the count. And this will include avioding conflicts with managers and avoiding trouble that could arise from miscounts and bad variances. Even though counters are supposed to be neutral and indifferent to the shrink percentages, it’s hard not to want good numbers to come about. No matter how long one spends doing audits, seeing someone get hit with bad audit is something you never get used to, nor is it something you can ever really enjoy. You might as well tell people that they have cancer (in a figurative sense that may be close to the truth at times). A bad shrink result can be very emotional, it can cause a lot of grief and headaches for the manager, but more than that it leads to the concept of further analysis. For the counter this may include recounts, and time spent researching why there exists such a variance. These types of things can bring down the productivity of a counter. A good shrink number conversely will be very agreeable for the manager, and can lead to a quick wrap up of the count. In these cases there's very little for anyone to complain about. A good shrink number makes everyone look good, both the manager and the counter, and everybody is happy. But from the counter's standpoint a good shrink number will be more productive because less time is spent researching possible mistakes, with either the count or with the book values. A counter has some reason to favor a good audit over a bad audit, other than favoring hugs over tears. While counters may be somewhat neutral or possibly indifferent to the shrink number, they may not go out of their way to nail a manager with bad shrink. A smart manager can use this idea to their advantage. One of easiest ways a manger can cheat on their inventory counts is to utilize pre-count sheets, either pre-listed or pre-counted figures that represent actual merchandise stored somewhere in a store. An honest counter in theory would check the accuracy of such sheets before including these data figures into their count. A productivity-conscious counter will not. In some companies I’ve worked for, it’s quite common to input pre-count sheets without giving any thought at all about the accuracy of the numbers on the list, or if the sheets even represent any real merchandise at all. A lot of counters will just view it as something else to “do” to complete a count. Merchandise stored in cases could also give the manager an opportunity for a small boost on his audit. With merchandise packed away in boxes that are out of sight, a manager can make things seem fuller and more dense than they actually are. It would make sense to assume that the cases on the bottom of a stack are full right? Well from my experience that's not always true. A supervisor I once worked for had a term called "fake outs". He used this for anything in a store that looked like it contained more merchandise than it actually did. The productivity-conscious counter is not going to tear down the stacks of Gatorade or cases of beer to make sure that they are all full, they generally won't move much product about in order to actually “count it”, there not going to grind it out for better accuracy, for them if a case looks full it is full. In fact the general way the manager maintains the merchandise in a store can be to his advantage as well. The things I hear audit companies and counters complain about more than anything is the disorganized, messy way in which some stores stock is maintained, especially in backrooms and storage areas. Audit companies talk a lot about having stores clean and organized, and well prepped for their arrival, in order for them to do their jobs easier and better. And I’m sure that to some extent an audit is more accurate the more organized a store is, but the thing is a more accurate audit, isn’t necessarily a better one in terms of the shrink percentage. During the time I spent working internally I produced plenty of evidence of this notion over and over again. There exists too many factors that go into a shrink percentage that a counter simply can’t control regardless of how they go about counting the merchandise. The counter’s main job really is not to control or even reduce shrink, it’s to measure it. A more disorganized store may increase the overall error of this measure. A measurement error that benefits the manager are exactly what they would want, given that they are not too excessive to the point, where it would eventually bounce back. Another way to cheat if you’re a manager is with the price gun. While most counters will raise an eyebrow at an 8.3 can of Red Bull marked at $4, few might bat an eyelash if something were inflated by smaller amounts of money say 10, 25, maybe 50 cents. If the price seems reasonable enough, the productivity-conscious counter will count items the way they are marked, and for items that aren’t marked, the productivity-conscious counter is trained to use “standard-industry pricing”. In other words they take a stab at it based on their counting experience, some people invariably are better at this then others. Of course the use of barcode scanning in inventories will pretty much eliminate this type of measurement error.

     The other player in this drama is big “C”. And with ”C”, we get the concept of the client in this process. Some would say that the client is both “C” and “c”, and in some ways a store manager can reap some benefit by the results of an inventory audit, either good or bad. An inventory audit is an opportunity to learn about things that may be taking place at a store, it offers a manager a chance to determine what needs to change about the way things are run. But ultimately a manager is the subject of an inventory audit, they are the ones being measured. In a larger sense the true recipents of this measure is “C” the corporate management, most notably the accounting and loss prevention departments. "C" is the entity that commissions an audit, and what they want out of an audit can differ drastically from that of a manager. To illustrate what “C” wants out of an audit I turn to Jack Henry for this exert:



“…I was told that at the end of their last inventory cycle, one store needed to be recounted. When the crew arrived for the second count, the crew chief asked, “How much difference are you looking for?” The loss-prevention manager replied, “That’s none of your business.” Rephrasing his question, the crew chief asked, “Then what should the last count have been?” Again, the loss-prevention manager said, “I told you that’s none of your business. All I want from you is an accurate count!” The loss-prevention manager told me, “When the crew chief learned that I was not the store manager, that I was from corporate, you should have seen his face….”


     This exert brings to light two points. One is that it’s “C” that most needs accuracy from an inventory count. This is no more true then it is for Loss Prevention. From a Loss Prevention perspective the inventory audit is done to determine if there’s any theft taking place. This is one of the biggest reasons that audits get done in the first place. I can’t forget spending a weekend at Quantum's headquarters and hearing some corporate officer ask why we do this, why are we in this business, only to exclaim “Because people steal!” I also can’t forget when I worked internally, hearing my boss actually confess that I really work for LP more than anyone else at our company. My old boss was right, inventory counters are doing work that most serves LP. The ‘data’ that inventory counts collect helps LP determine if they need to investigate a store more, or spend their time on more pressing issues elsewhere. Inaccurate counts, can make things tough for LP in their quest, which is to ultimately save the company they work for money. An inaccurate count could either give a signal to non-existent trouble where there may be no theft issues at all, or more dangerously mask or conceal issues that don't appear in the shrink results. It’s easy working internally to see the deeper impact and the importance of inventory counting on the other people who work for the company; decisions get made based on inventory counts. Yet the idea of how important an inventory count is for "C" doesn't get across very well for people who work externally. Part of the reason, likely is the interference that comes from “I”, who desires for an inventory count differ a lot from “C”. The other point made by the exert from above, is that “C” is not much of a presence for most inventory counters during an inventory count. Most members of “i” aren’t aware of “C”, or what they want. Apparently “C” at times takes on such a ghostly force that “i” doesn’t even realize when they are talking to them. For the average member of “i” they interact with their own co-workers, agents of “I” (usually their superiors), not to mention store associates and members of store management, interactions with people above the store level, like LP are rare. When “C” does show up for an audit, “i” probably doesn’t even notice, nor would the two ever really be formally introduced. The whole audit process starts with “C” coming to “I” wanting counts to be done in order to accumulate information about their own company, but eventually the actual act of performing inventory counts comes down to a process being acted out through “c” and “i”, with little oversight from their corporate counterparts. When you consider this scenario it’s not hard to understand how fraud can occur in inventory counting. What’s also worth noting is the different forces at work for an inventory counter stuck in the middle of all this. “C” needs “i” to produce high quality work, that’s accurate and though and complete, but “c” needs “i” to produce work that will reflect well on themselves and their store, while “I” needs “i” to produce work that’s efficient and productive, and most notably profitable for their company. These 3 aims for “i”, do not mix very well, often the needs of those closest to “i” will win out, the loser in this battle most of the time is “C”, their influence on "i" is the least direct. Take accuracy for example, the LP manager wants a highly accurate count that essentially reflects exactly what is in a store at a given time, but the store manager only wants a count to be accurate in so much as to not affect them negatively, while the auditing company wants the counters to be accurate to a point not to affect the profitability of the process. With this in mind consider how much the counters who work for an auditing company worry about accuracy, and then ask yourself who's winning this battle? But what about “i”? What exactly is their aim in all of this? Do they have any interests in regards to an audit? Or are they just pawns in this game, mere counters who show up and count according to the way people want them to. In many cases they are there to provide a “service” for many different sets of people. But if the needs of “C”, “c”, and “I” are in conflict whose needs should “i” give preference to? Who’s service is of the greatest importance dictating how counters should count. This could be a gigantic area for disagreement.

The Auditing Company

      I want to share with you a comment that was posted on the Misfit's blog titled "Tales Of A RGIS Auditor". The Misfit and his responders do a very good job of capturing what it's like to work for RGIS. I've spent time working for RGIS myself, and I have absolutely no difficulty believing anything that's been written on that site. I did run across one comment, that for me is essentially inventory counting in a nutshell. I'll post a portion of it here:



".... He then led me to a rounder of woman's clothes where he stayed with me for about 15 minutes and showed me what I needed to key in. (I started with RGIS about 14 years ago, when 60% of inventories didn't use a scanner).

I was being soooooooooo careful to make sure I keyed in the right department and sku and price on every single tag. Anyway on the way up to the store one name that kept coming up in conversation was this man Jeff. They had made him sound like a monster. In fact I was thinking that I really didn't want to work when Jeff was running a store. Well sure enough here on my 1st inventory I am trying my best and all of a sudden this guy in a suit is standing next to me watching me count. I looked at him and he said "You are not making me any fu------ money counting like that!" And then before I could even respond he disappeard[sic]. I later found out that this was the infamous Jeff."


     An inventory service is above all else a business, and like any other business the main objective is to bring in money. We wouldn't expect any inventory service to operate at a loss, but at what lenghts would an inventory service go to in order to churn out a profit? To answer this, let's first examine the business of inventory counting.

     What an inventory service is basically selling to it's clients is the 'service' of having people come to a store to perform an inventory count. There are a myriad of different clients varying in store types and sizes out there, as is there are a numberous inventory services that differ in size and specialization. The size of the client's store can determine the options available in regards to inventory counting. Large-scale clients like big-box retailers Wal-Mart, Target, or Home Depot don't have many options at there disposal when choosing an inventory service. Counting their stores (at least in a timely manner) requires a lot of manpower, and they need an inventory service that can provide that manpower. Usually that means either RGIS or Washington, the 2 biggest inventory services in the world. Other types of large-scale stores like department stores (JCPenneys or Sears) or large grocery store chains may also fall into the RGIS/ Washington recourse. I don't know of any other inventory service that can compete with these 2 on sheer available manpower alone. As the stores get smaller, there exists more options available for businesses to turn to for inventory counting needs. There is an organization called NAAIS (North American Assiocation of Inventory Services) that is home to dozens of small to medium sized inventory services. A lot of these comapanies can service smaller grocery stores, truck stops, pharmacies, liqour stores, card stores, and stores which you'd find at the bottom of the size scale, convenience stores (or C-stores as they're affectionally called). Some of these companies will even specialize in doing only certain types of stores, most notably is Quantum Services, a national chain that specializes in servicing C-Stores. C-Stores probably have the most number of options to choose from when selecting an inventory service because the job itself doesn't require a great deal of manpower or technology to do. The options they have include the aforementioned RGIS, Washington, and Quantum, other NAAIS companies, non-NAAIS outfits they may consist of nothing more then two guys with ICALs, and internal counters (still a viable options for these types of stores). With more competition and lower costs to perform a count, c-stores can get a pretty low rate from a service. An inventory service that offers an exurborent rate for a C-store will probably price themselves out of a client. In many cases, the rate that a service gives a c-store is designed to obtain a client.

     But when an inventory service charges a low rate, and lands a contract to count a store, the task then becomes trying to turn a profit off of this. Thus we have to consider what does it cost to do an inventory? Here are some of the more common areas that contribute to this cost.

Supplies
      Performing an inventory, can require paper, inventory tags, batteries for machines, (if printers are utilized) ink, among other things. Most of these items can be bought for in bulk (especially for things like paper) and their cost can be spread across a lot of inventories, so the cost per inventory for supplies usually is pretty low.

Equipment
     Includes hopefully counting machines, and depending on the company may also include laptop computers, printers, lasers, and other devices actually used in counting the merchandise. The cost of these items is going to be more significant then mere supplies. But most are still going to be one-time costs and not something that gets factored in every single inventory. If the equipment is durable enough to be used for a large number of inventories the cost per inventory for equipment can still be pretty managable, but still higher than it would be for supplies.

Travel/ Transportation
     A major part of inventory counting is still travelling to stores to count them. How costly this portion is can vary from company to company and depends on how much territory a service needs to cover. Transportation costs can include obvisously gas for vehicles, vehicle maintanence, hotels, and meals when out on the road. Some companies may even compensate their employees when such costs are incurred during the job.

Other Overhead Expenses
     I'll use this category to lump in other things that might not fit elsewhere. The most significant examples of overhead costs might be rent for office space or the use of company-owned vehicles. These can be spread over a lot of inventory counts, and like travel costs can vary widly from company to company.

Payroll
     Lastly and definitely not least is the money a company pays it employees to perform the work itself, and this can include not just coutners, but also all corporate and administrative positions as well. This could also include the cost of employees benefits should a company offer them, like health care, or bonuses.


      It's hard to say what category would contribute the most to a company's cost structure. Companies like RGIS or Washington could spend a lot on overhead costs, other companies will cover a large territory of space, incurring costs along the road. Then there's payroll which unlike some of the other categories shows up in every single inventory, nothing gets spread out in this category. To cut costs, a different approach may need to be used for each category. It'd be hard for an inventory service to skim on supplies or equipment, and even if they did the additional savings per inventory wouldn't seem worth it. To skim on travel costs, a service can schedule stores in runs, groups of 2 or 3 stores to be done consecutively to cut down the miles on the road, outside of this not much can be done with travel costs. Skimming on overhead costs may only mean not utilizing the assets like office space that would eat away at the company profits. Payroll is a different story, because it can't be eliminated or spread out over multiple inventories, controlling it is more of a challenge. Corporate and administrative positions usually are paid salary, so their pay is predetermined and fixed making it easy to control. That only leaves the task of controlling the payroll of inventory counters.

      To compensate employees for the work of counting a store's inventory, you could pay them a set salary as well, this would eliminate the length of an inventory as a factor relating to the cost of an inventory, and also eliminate overtime pay from the equation. In situations where the counter works a steady number of hours each week, this actually might make the most sense. The times in my career where I've focused solely on performing C-stores inventory counts I have worked very steadily week in and week out, and the companies that employeed me during those times did pay me salary. However outside of a C-store focus, most inventory counters aren't going to get steady work. Inventory services are for the most part at the mercy of clients when it comes to scheduling and that means some weeks (especially in January) counters will work non-stop and other weeks (like November) there'll hardly be any work at all. Most inventory services will choose to pay counters by the hour. Companies like RGIS or Washington with their large workforce would never even contemplate paying anybody salary unless it was an management position where they know that person is going to put in a lot of hours of work towards the job. Thus controlling the cost of the inventory comes down to one thing more than any other, the hours a counter puts in towards that inventory and ultimately the length of the inventory count.

      Thus the task of cutting costs on a inventory requires minimizing the man-hours needed to get a job done. There are different ways to approach this. One way is to minimize the number of counters assigned to a job, to do more with less. Fewer people counting at an inventory means fewer man-hours used during an inventory and less money for the service to dish out in employee pay. Granted sometimes fewer people may mean a count that takes longer to complete. A service may have to find the right balance between crew size and inventory length in order to minimize payroll for a count. This balance also has to consider other factors as well. Sending three people to do a grocery store will still take awhile to complete, and that may not be too pleasing to the client. One of the things a client wants out of a service is a crew that can get the job done in a timely fashion, so there has to be some balance between profitablilty and client satisfaction when choosing the crew size. In the inventory service's quest for the right formula to minimize payroll costs, not only can they consider 'how many' to send, but also 'who' to send. Not all counters are equal in terms of ability or talent or work ethic, some people are simply faster than others. Sending in faster counters will result in the inventory being done quicker and thus less man-hours used, and that leads to greater profitibilty for the service. For an inventory service it would be in their best interest to get their counters to count as fast as possible, but how do they do that? By pretty much creating a culture where such counting prowess is highly encouraged.

      Consider an example where an counter is sent to count a c-store by themselves. Let's say inventory counter A takes 6 hours to complete the store, and on the next count counter B takes 4.5 hours to get the job done. For a store that pays the same rate for each inventory count and for two counters paid the same, counter B is obvisously more profitable for the inventory service, and will get the most praise from the inventory service on his/her job. The inventory service will end up looking at counter B as more of the idealized concept of how people should count according to the inventory service. They may try to get others including counter A to be more like counter B. But more importantly if a job comes up that both counter A and counter B are available for, who do think gets employeed to do it? The inventory service is going to go with the counter that they will make the most profit from. Remember they're a business, they have a bottom line to look after. The inventory service will even keep a statistic on each counter to try to determine how profitable each one is, this statistic is their average counted per hour. In a financial inventory it's the dollars counted per hour, in other types of inventories it's the pieces counted per hour. For many inventory services the road to profitibilty starts with trying to get their counters to increase their average counted per hour (or APH for short). They do this by promoting the techniques of profitible counting, they'll instill in their counters things like the 1% rule, the concept of 'sight counting', and other shortcuts to counting like price estimating. There definitely will be talk from the inventory service about 'minimizing downtime' and having better 'audit flow', they'll talk about not wasting too much time in the set-up and in the wrap-up of the inventory. In the end what gets promoted is a get-in, get-it-done, and get-out type of mindset to inventory counting. Attention to detail? nah, that'll only slow you down. Accuracy? well as long as you have enough to keep the client happy, don't go crazy with it. The question is though is how far would a counter or an inventory service go in order to be more profitable? In many cases there's some tradeoff between the level of "service" and the demand for profitablity, but would a company tradeoff their own integrity in order to be profitable? If you think the answer to this is 'No', then let me suggest that you read more from the blog which I quoted from at the beginning. I don't think any RGIS counter would be shocked to read descriptions of how people actually count on this blog. The Misfit and his responders have helped expose some of the methodology and mindests that exists within the inner RGIS culture. Below are some more windows from which one can peek into this world:
"My district's inventory reports were never quite up to par, so there was ever increasing pressure on the managers to improve. Of course, that meant more pressure on us auditors to count fastert faster faster! Faster counts meant better-looking inventory reports. Better looking inventory reports meant bigger bonuses for the managers. But what did it mean for us lowly auditors? Not a whole lot. If we were fortunate we might get a laconic "Thanks" as we closed out our audit machines and headed out the door"


" You're[sic] ability to count fast is all that matters, and the means to the end is not considered."


" Another item that gets batched a lot is greeting cards. In some stores we would do financial counts on them rather than scan even if we were scanning everything else in the store. Those counts were usually way off. The way we were taught to batch cards were to take a card from the middle row and then keep keying the 6k key for the whole row going across. I remember recounts would never come close."

" For instance, if the magazine total for the first register came up to $609, then we would just look and see if the next register seemed to have more or less magazines and just key in a total on that department based on that. Of course we had to make it look like we were actually counting to the store personel[sic], so we would hit 2 or 3 numbers on our machines and then the clear button. We would keep doing this until we felt that we spent sufficient time at each register as to not get questioned how we could have counted so fast."


"Batching was sometimes overlooked by TL's and managers because it was understood by them that it was necessary to get out of the store on time. No manager ever came right out and said, "Yes, batch", but they knew about it all right and if they thought they could get away with it they would look the other way."



    All of these are from the "Batch? Natch" entry, you can read the whole thing at http://rgisauditor.blogspot.com/2006/05/batch-natch.html. And if you think this problem is limited to a few bad districts from within RGIS, there's more. During my early days with RGIS I got to work with a manager named Charlotte. She transferred into our district right after one of our own area managers got promoted. She had only been in our district 2 months when one day, she went off to attend a meeting with some corporate suits at our division office. The next thing I hear, a Team Leader had to drive her home, because she had gotten fired. At a division meeting the following week, our Operations Manager let us in on what had happened. Charlotte and Morris her DM were at a grocery store when they decided to plug some numbers in for a few sections that weren't counted. I don't know if they were missed by accident, or the two decided to just plug the numbers in. Morris actually asked to Charlotte to plug the numbers in, which she did, and they then finished up the inventory. Well long story short, they got caught. RGIS did an investigation into that inventory and it was pretty clear that they had plugged the numbers in. Charlotte tried to defend herself by saying she was simply doing what Morris had instructed her to do. This was for naught unfortunetly as both of them were fired. In an attempt to be productive and make the company money at one single inventory, these two went beyond what was acceptable and paid for it with their reputations and their careers. I don't know what the benefit either Morris, or Charlotte would have incurred had this deception gone undetected, but I'm thinking it probably pales in comparasion to the price they paid for getting caught. The another thing I learned from this episode is that the only real losers, here are Morris and Charlotte. Granted RGIS did probably lose some good standing with this particular client, but you know what RGIS is still in business today, they have survived and they're still making money, even without Morris and Charlotte. What's more RGIS corporate in situations like this get to take the high road and fire these cheaters as a gesture to their clients that they take these incidents seriously and that they will take swift action to prevent these events from happening again. When a counter cheats in order to be more productive, its only their reputations that get smeared, not the reputation of the company they work for. Although events like this can be a double-edged sword for RGIS, on one hand it's good that corporate can catch people exhibiting such low integrity behavior and act upon it, on the other hand it exposes the fact that there are problems that exist, and it might lead one to ponder about what percentage of cheaters at any inventory service actually get caught. The last "Batch? Natch" quote seems to suggest a 'look the other way' approach to such events, a mentality that exists for the purpose of maintaining profitably, and one that is only discarded when engaged by the client.

     But if you think that this is only a RGIS problem, there's more. At the History of Inventory link on the NAAIS website Jack Henry and Carl Jackson have also collected examples of inventory "counting" at its finest. My personal favorite was the company where 3 people counted a $300,000 inventory in 3 hours. After their work was compared to a more reputable inventory service, it was discovered that what the 3-man crew did was count the top shelf on each aisle, and then multiply that figure by the number of remaining shelves. I'm amazed that they even got away with something like that. But Henry/Jackson do spend time discussing one case of inventory fraud in particular, involving Accu-Rate. As the story goes Accu-Rate was found gulity of systematically padding inventories at a whole bunch of grocery stores on the East coast. How they went about it was by walking in with the previous inventory figures, and simply estimating large sections of the store based on the previous figures. In some cases reportedly the company president of Accu-Rate entered stores during their inventories and either "fixed" the inventories, or trained his staff to do so. But here's the kicker, the reason he did this was not to bilk the client out of excessive fees (even though that happened anyway), the reason was to increase profits by reducing man-hours spent in the store. So Accu-Rate didn't want to bilk the client, only their workstaff. This practice got so bad that at one particular inventory an 8-person crew counted a $500,000 store in 3 hours and 15 minutes. With what Henry calls 'mass estimation' taking place, the counters employed by Accu-Rate in many cases got cheated out of money because either they weren't needed to be employed or the ones present did not get to work the full complement of hours that a proper count would have taken. And if the counters were part of this scam, you have to ask yourself why? Why would a counter put his own reputation and essentially his own job on the line in order to get the job done faster, work less hours, and get paid less money? I honestly can not understand the rationale for any counter to estimate like this in any inventory, although some companies do attempt to come up with some. It's not hard though to understand the rationale of the Accu-Rate's president. According to this article Accu-Rate was able to land their clients by offering a lower rate then most competitors and thus it was the impetus of Accu-Rate to turn a profit on every inventory performed. When choosing an inventory service, you should probably never choose one solely based on price, but even further than that whatever price a service quotes, one should consider that their intention is to provide a service that costs less then their quote. Clients should consider how much a good, "proper" inventory would reasonably cost when choosing an inventory service. And clients should understand that properly counting an inventory is hard work, at times it's tedious, and time-consuming, and this means the service has to spend some money for payroll. If counting inventories was an easy job, odds are most companies wouldn't outsource the task to a third-party company to do it for them. Granted external services do provide some level of independence to the job, but the main reason external services exist is to accomplish things that the client couldn't possibly do on their own.

The Shrinking Phantom

     Of all the things that comprise a store's book inventory, one of the more interesting factors to consider is the previous inventory counts. The previous inventory counts can have a bearing on the audit-to-book variances for the current audit. An inventory count is not a seperate entinty all to itself, but rather part of a series of measurements to continually monitor conditions within a store. The first count you do for a client is always going to be the most difficult, not only are you unfamiliar with the store and with their unique merchandise, but also another counter's work will have an impact on that day's audit results, and you have no idea on how accurate that counter was. On an inventory audit the inventory counts will get booked into the store's inventory replacing what they had before. At this point the inventory is "zeroed out". If a count was not particularly accurate and those numbers get "booked", than a highly accurate count on the next audit would produce what's called a "bounce back". A bounce back is essentially the result when one audit comes out over or short, and the subsequent audit results in the exact opposite effect essentially cancelling the two results out. There are actually many things that can create a bounce back, like a badly timed booking of an invoice, but the main suspect is always the inventory counts. But what would happen if one inaccurate count was followed by another inaccurate count, would this produce a bounce back? That may depend on the magnitude and direction of the error.

     To answer this question I'm going to focus on financial inventory counts, primarily for c-stores, and I'll start by discussing the counting error that we already know will occur, error from sales adjustments. Obviously if we count a store while it's still open there will be some level of error in the adjustments made for sales during the count. The size of the error may be small enough to be of little consequence on the audit results, yet the erorr will still be there. It would still throw off the number that get booked, and it should still cause a slight bounce back for the next audit, or would it? If you think about it when won't you have sales adjustment error during a count? When the store gets sold or shut down and they decide to close the doors for a count I suppose, but outside of that probably never. What type of bounce back effects can we expect when we know that error will always be present in every single count?

     Let's say for instance that a sales adjustments inflates the inventory by $20. If the exact same error takes place on the next count, nothing would bounce back at all. The $20 boost on the second count would cancel out the bounce back effect from the first count. If the error on the second count shorted the count by $20, then it would bounce back too much, you would lose the $20 on the second count, and you would be hit with the bounce back from the first count creatign a total shortage of $40. With error taking place every single time lots of scenerios could unfold, you could see inventories padded on consecutive counts, you could see inventories shorted on consecutive counts, you could see inventories go from being over and then to being short and then back again swaying back and forth like a pendulum, only it never quite evens itself out. Unfortunetly when it comes to inventory counting errors there are more things to discuss then the "nickels and dimes" one loses or gains from the half-sales method.

     Inventory error can also appear in cases where there's poor estimating, honest counting mistakes that go undetected, or in cases of inventory fraud. Fraud is the most interesting to consider because it is far more intentional, and the most likely to be repeated on subsequent counts. Talent at estimating can rise and fall, making the exact some honest mistake two times in a row and not fixing it either time is unlikely, but purposely throwing off a count is not always a one-time occurance.

     In most cases of audit fraud an inventory is padded to prevent (or more accurately to conceal) large variances on the audit-to-book comparasions. There are several reasons why a counter would pad an inventory, part of it may be to prevent confrontation with the store managers by having an agreeable audit result, part of it could be to expediate the inventory wrap-up, part of it could be to improve on their level of production. An highly skilled counter I once worked with told me a story of a manager who came up to him one time during a count and told him "count it high or go home". This could easily be a mantra for a lot of inventory companies. Fraud is at its worst when it is the result of collusion between the counter and the store management.

    Let's say that a store manager somehow steals $500 from a store during an audit period, he could cover it up by having a counter pad the next count by $500, thus resulting in decent looking audit results that avoid the scruntiny of loss prevention or accounting. There's only one problem, eventually there's going to be another audit. The store manager has to address the issue that the book inventory still overstates the 'actual' inventory by $500. If a counter pads an inventory, he essentially adds money to the count for merchandise that isn't really in the store at all, something I'd like to refer to as "phantom inventory". How does the manager and maybe even the counter as well, deal with the eventual bounce back effect that this phantom inventory will cause? There are several ways to do this.

     The counter could on the next count pad the inventory again by the same amount. This would offset the bounce back that should occur and may even result in a decent audit result. The problem though is that by offsetting one bounce back effect, you'd be setting up another one to occur on the next count. A counter would then have to pad the count on the next count and the next count, and so on and so on. If the counter pads the inventory by the same amount each time, we could refer to this as the "constant phantom" method. This type of scheme would only delay the bounce back from occuring, it wouldn't eliminate it all together. At some point the padding will stop, and the evitable shortage will occur. If one can delay the bounce back effect long enough it may make it difficult to find the source of the shortage.

     Another approach would be to try to deal with the bounce back effect that gets created when an inventory is padded. In what I'll call the "shrinking phantom" method, consider a scenerio where a counter initially pads the inventory by $500 to conceal a theft. He could pad the inventory by $450 on the next count, then pad the inventory by $400 on the count after that, then $350 on the next count and so on until the counter no longer needs to pad the inventory at all. What's interesting about this method would be that each subsequent count gets more and more accurate to the point where a counter doesn't need to add any phantom inventory at all. What this method does in this case is take the initial loss of $500 that should occur in one audit and spreads it out over 10 audits, where each count has a smaller bounce back effect of $50. However the trick to the shrinking phantom method is in the spread. If you spread it too thick, the audit losses might be big enough to draw some scruntiny from loss prevention, if you spread to too thi, you'll end up employing a system that may take forever to complete. Depending on the aduit frequency 10 audits could take 1 to 2 years to complete, and ideally you'd want the same counter for all the counts. The amount of time that is required to use this method of systematic padding could be a deterant to it's use, another reason for this method not to be used might be greed.

     If the manager and counter successfully cover up the theft during one audit period, they may figure why not do it again. But here's where the bounce back effect works against them. If another theft of $500 takes place during the next audit period, then the counter has to count $1000 of phantom inventory in order to conceal the theft. $500 of it would be needed to counteract the bounce back effect from the last count, and another $500 to conceal the most recent theft. If this trend continues, the phantom inventory will continue to grow and may reach levels to a point where the total inventory counted seems infathomable. The thing about padding an inventory is that the extra money has to go somewhere on the inventory counts. A counter has to stick this phantom inventory somewhere in one or more sections of the store. If phantom inventory continues to increase the current to previous comparasions could start to signs of trouble. Not only that but the book numbers will also rise. In fact they'll show a secular upward trend over the course of several sudits, and this usually is a sign of trouble. Inventory levels don't just steadily and continually grow by natural means alone. From their essay "What Causes Inventory Fraud?", Henry/Jackson detail a story of a counter who used this "growing phantom" method. On the first audit the pad was $2,000, on the second audit it was $4,000, on the third $6,000 and so on, eventually a store that normally carries $30,00 was showing an inventory total of $52,000. Phantom inventory obvisouly was the cause for the sharp rise in inventory and if Jack Henry is writing about this counter then obvisouly he got caught. Constant theft in each audit will leave the counter with few options when it comes to concealing it. Eventually the numbers will get too big and will invite scrunity from Loss Prevention or Accounting. And if the counter decides to stop padding the inventory, then he'll wind up creating the audit results from hell, which is guaranteed to bring scruntiny.

     Then there are situations when a counter misses counting merchandise. This will cause the inventory to be booked short, and create what I call "bonus inventory", where a store actually has merchandise that isn't on book. This would create a bounce back effect on the next count provided that no theft takes place. If someone where to steal bonus inventory, it wouldn't cause a shortage, because they'd be stealing stuff that isn't on book, it'd be as if the merchandise was never theoritcally there to begin with. With bonus inventory you could create the audit shortage before the theft. A collusion scheme with bonus inventory could be interesting to implement. although it would still include purposing counting things short and creating audit shortages. Probably most collusionists would prefer a plan that keeps audit results fairly even not intentionally short.

     Of course trying to identify bonus inventory or phantom inventory is not easy, and just like with counter accuracy, the audit-to-book comparasions offer little insight. When you get right down to it there's very little connection (if any at all) between counter accuracy and the stores' audit results. It's possible for a count that produces a bounce back to be highly accurate, and for a count that doesn't to be somewhat inaccurate. It's also possible to have decent audit results right after a theft, and have a sizeable audit shrink after an audit period with no theft at all. When you think about it all one gets with an audit-to-book comparasion is a series of numbers. One has to dig deeper for the story behind these numbers. All by themselves numbers never speak.

How's My Accuracy?

When I worked for Quantum Services, every so often they would publish a newsletter internally for all of it's employees. One month they devoted a small section to the notion of accuracy. They wrote:

"Quantum Services is paid by our clients to account for all merchandise at the client locations. Quantum Services' employees must physically count all merchandise in the client locations. All employees are required to maintain an accuracy level of 99%."

Interesting how quickly they go from the hard absolute concept of 'all' to the notion of 99% and the wiggle room that comes with it. But if 99% accurate is Quantum's goal, the question is how would they go about measuring and monitoring one's accuracy to ensure that a counter is in compliance. At any one particular time is an inventory service able to say that a certain counter is accurate at a certain percentage. How does this statistic get captured?

In pretty much every scanning inventory I've done for RGIS, counters will record a piece count for each section they do. In some stores, store employees will verify behind the inventory count to ensure accuracy. In this type of scenerio one could keep track of all the discrepancies that take place, record how big it was and who the counter was, and as a result could possibly tally an accuracy percentage for that counter. Although, I've yet to work for an inventory service that ever did this. For financial inventories arriving at an accuracy percentage is a little tougher, and honestly I doubt that anybody really does anything to capture exactly how accurate any counter is. If you asked an employee of an inventory service how accurate someone was, they probably wouldn't answer you by citing an exact number. If they did they're probably making that number up. However even in financial inventories, there are some tools used in determining or in gauging how accurate somebody is. Below are some of the most common tools used.

Current-to-Previous Comparasions
In this method the inventory totals from the current count are simply compared to the totals from the previous count. This will provide a view of what sections in the store are "up" and "down" when compared to the last count that was done. Generally totals should be consistent from count to count, but the main problem here is that there is going to exist some variation from count to count. No one would expect the exact same totals each time a count is done, natural variation will occur, the question though is how much variation should we expect, and what factors would cause some variation. The day of the week a count is conducted on could create some variation into the count. Most vendors will deliver merchandise to c-stores on a weekly basis, so catching a store at a different time in the vender cycles will cause a good deal of variation. For instance if a store had their main grocery delivery on a Wednedsay, and a Tuesday count was being compared to a Thursday count. The Tuesday count totals should be lower, especially in the areas most affected by this vendor, like candy and tobacco. So if the one candy side is down $200 from last time, that might seem reasonable. But what if it was down $300, or $450, then you get into 'maybe' territory, and that's generally not a good place to be if where's trying to guage how accurate the count is. Store resets are another big problem that creates huge amounts of variations. After some resets, you end up comparing counts from 2 completely different store configurations, and these comparasions wind up being pretty worthless, especialy if you're trying to gauge accuracy. These Current-to-Previous comparasions can be useful in some cases however. Once during my days when I was working internally, I had counted $10,000 worth of candy on one of the gondolas in a c-store. The count last time was only about $5,000. I decided to recount that section and the recount came up with a number that was more in-line with the previous count. I used this recount and thankfully kept myself from inadvertently inflating the inventory by roughly $5,000. Current-to-Previous comparasions are great for judging the 'feasablilty' of a count, but as for the accuracy of it, there do exists some limitations and obstacles.

Audit-to-Book Comparasions
Perhaps the biggest misconception in inventory counting is the notion that if there's a large variance between the book figures and the count, then the count must be wrong. Granted an inaccurate count could create a large variance between the audit counts and the book values, but there's a lot of things that can create such a variance. The notion that a perfectly counted inventory will never result in a large variance is simply not true. Let's consider what all goes into the store's book inventory. To clarify a book inventory figure at any point in time is based on the past inventory counts, sales from the last inventory audit, deliveries from the last inventory audit, store transfers, store credits and write-offs, and retail inventory adjustments that are necessary for items sold at a markup or markdown price, or for price changes. If anyone of these are inaccurate or missing, then the book inventory is going to be off. Thankfully modern technology has enabled automation for some of these factors like sales, and adjustments for markups and markdowns, but other factors like entering in delivery invoices, doing write-offs, and price changes still require human effort, usually from a store manager or their underlings. In the end, both the inventory count and the book figures wind up being products of human effort, and both are prone to error. Thus when we compare the inventory counts to the book numbers, you have one set of numbers that's prone to error being compared to another set of numbers that's prone to error. Trying to determining which side of the equation is responsible for a variance is not going to be immediately transparent, which will require further investigation. One thought that comes to mind is that when one side of this deal is extremely accurate and bulletproof, it will probably expose the inadequancies of the other side. Managers who are always on top of their paperwork, and who keep their book inventories in good order will have better insight into the accuracy of a counter when the time comes for audit-to-book comparasions to be made. The problem though is that store managers exist at many different levels of experience and talent, and much like inventory counters it is a profession that has its share of turnover. Also my 'bulletproof' axiom can work in the opposite way as well. A highly accurate counter can expose an inexperienced manager. So when there is a sizable descrepancy between the book and the count, naturally it's human nature for one side to look to the other side for the explanation, as an inventory counter I've been both a victim and an offender to this mindset. And if this weren't enough we can complicate things even more by adding the notion that an actual theft could create a variance. In this case there may be nothing wrong with the inventory count nor with the manner in which store paperwork is processed. When you consider all the things that can affect the audit-to-book variances, this is probably going to be one of the worst ways to judge counter accuracy.

Recounts
If a particular number doesn't look good, one of the most popular methods of dealing with it is to have a counter recount that particular section. If the recount comes back with a similar total this will seem to confirm the accuracy of the count. But what if the second count is vastly different? That's the thing about a recount, you're essentially repeating the same process that might have failed initially. A recount is as much prone to error as the originial count was. Also if recounts are done some time after the initial count, and the store remains open during the inventory there may be some variance between counts. Although the variance here should be fairly small, much like count-to-previous comparasions there's going to be some 'maybe' territory when judging a recount against the orginial. A recount that comes out higher than the original though should raise an eyebrow or too, unless merchandise was stocked in-between counts. In some cases a recount is merely a 'second opinion', a chance to see if someone else would come up with something different? If 2 people count a section and come up with the same thing this would seem to validate the work of both counters. If a counter recounts a section that they counted originally, you have to wonder if you're getting a measure of their consistency or their accuracy. Ultimately what can we infer from 2 counts that are wildy different? You could argue that one count is right and one wrong, or to complicate matters that neither are correct. In this case you would need a third count to judge which one is right, whether it'd be from another recount or from a past count. From these scenerios what can we say about a counter's accuracy? If a recount is wrong, do we infer that the recounter is inaccurate, and what does this say about the original count? anything? And by how much do we say that they were inaccurate. If both counts are wrong how do we arrive at a measure of inaccuracy for either counter? With each count being prone to error, and with the presence of some 'maybe' territory, it's hard to arrive at an accuracy level from a recount. In general a recount seems better designed to confirm someone's count, rather then to offer proof against it. As for the magic measure, it's even more ill-designed to do that as well.

Keystroke Detail
This method involves examining the keystrokes that comprise the counts themselves and verifying them against the product on the shelf. Keystroke detail allows you to see how an inventory count for any section is constructed, and allows one to see whether or not it's right when held up to the items in the section itself. This method probably offers the best view of how accurate a counter is. What makes this method different from the rest is the fact that we're comparing the counts up against the actual merchandise itself. When we think about counter accuracy what should come to mind is how well a count reflects what is physically present in a store. It would make sense then that to measure accuracy that's what we would want to look at , what is actually there, not what someone else counted or what the book inventory says should be there. Keystroke detail also gives you far more certainy as to whether or not the physical count was correct. For instance say I accidently count a few boxes of candy at $8.99/piece instead of $.89 because of a keystroke error. Comparing my count to last time may reveal that candy is up, but it could be viewed as within normal levels of variance especially if I consider a factor like vendor cycles. A recount, done properly, would result in a smaller count but it could still fall in the land of 'maybe', and if it didn't it wouldn't necessarily give much insight as to whether my original count was incorrect. Looking at the keystroke detail, I'm going to know that $8.99 is not correct, and I'm going to know that the this count is not accurate, and even better, I'm going to know exactly what needs to be done to correct the mistake. The level of certainty you get from this method can result in greater accuracy in the end. Granted you probably wouldn't want to review every single keystroke in an entire inventory, but this is a great tool for zeroing in on a certain portion of the count. This can be used for the 'further investigation' I mentioned earlier. With keystroke detail you're sort of putting a slice of an inventory count under the microscope for a more intense review of one's accuracy.

But more importantly the certainty that this method brings can allow us an opportunity to measure a person's accuracy. When we find a mistake we'll know the value of the mistake and the value of the section when correct. We could use these two values to arrive at an accuracy percentage. The only problem here is going out and collecting the data. To obtain this measure someone has to review keystroke detail up against the physical merchandise itself, if not the counter themselves ( a scenerio that might present some issues) then who? Keystroke detail most of the time is used to 'obtain' accuracy not to measure it. I honestly can't think of anything that any inventory service does to literally measure and record a person's accuracy. It seems odd for an inventory service to uphold a standard of excellence in regards to accuracy when there seems to be no internal mechanism present to monitor and measure it. There probably isn't an answer to the question of how accurate a given counter is. Nor would there be an answer to the question of "exactly how much is very?"

Do You Feel Me?

Back when I was just starting out with RGIS, I was in a company van on the way to a store with five other counters plus my DM. My DM was telling us that this inventory was a scan inventory, and was going to be a little different from the string of financial inventories that we had done recently. One of my co-workers quipped "So we actually have to see what we're counting". This comment was said somewhat in jest, but it had some truth to it as well.

The sense of sight is a pretty important sense in inventory counting, it gets mentioned a lot when counting techniques are discussed. If you want to count a store accurately, obviously you need to see the product in order to do it, blindness is probably one of the few physical deficiencies that will keep you from being hired by inventory services, and trust me some of them are real desparate for workers. But this got me thinking, how important are the other human senses to the inventory counting process?

I honestly cannot think of any possible scenario where a sense of taste would impact inventory counting in any way possible. If such a scenario exists, I would love to hear it, but I'm going to declare that the sense of taste has no effect on inventory counting.

I suppose the sense of smell may help a counter become aware of certain odorous products that need to be counted, but for the most part, it offers pretty much no aid into the counting process itself. The sense of smell for the most part has no effect on the inventory counting process. Much like taste it would require a extremely "unique" set of circumstances for this not to be true.

The sense of hearing is a far more important sense for inventory counting. Most counting machines are programmed to produce audible alarms when a certain set of keys are hit. These alarms are important to maintaining accuracy by warning counters of potential handkeying mistakes. Also in scanning inventories, a captured barcode can be confirmed by an audible beep from the counting machine. These beeps let the counter know that they've captured a particular item. Of course I always find that it's easier to hear other people's beeps than your own. But outside of these examples, hearing doesn't play much of a role in inventory counting. I actually believe that a deaf person could function as an inventory counter pretty well. As long as they can see the product, communicate with other counters and store personnel, and use a substitute for the alarms and beeps mentioned above, there's no reason why a deaf person couldn't count inventories. In fact there are substitutes for the alarms and beeps out there. I recall working with a hearing-impared counter during my days with RGIS, he used a vibrating device as a substitute for the machine alarms, plus all the scanners would give off a visual light flash when a barcode was captured. A lot of times I found it easier to look for that flash of light then to try and hear my machine beep over everybody else's. So hearing can be an important sense, but not necessarily an essential one.

Sight is obviously huge in inventory counting, but the story above illustrates that in financial inventories, not everything that is counted is seen by the counter. This leads us to the last sense, the sense of touch.

In scanning inventories, or inventories where a barcode is captured, the sense of touch can't be denied. Most barcodes are located on the product itself, and on occasion faced to allow for convenient scanning. Scanning inventories may also feature a greater level of detail than traditional financial inventories, it's more important to have an accurate count in these types of stores, than in financial inventories, so your gonna have to touch the product in these inventories there's no other way around it.

The sense of touch would also seem to be important for financial inventories as well, especially sense not everything can be seen, but strangely it's not stressed that much by inventory services. I was given a handout when I first started out with RGIS (a portion of which you can see below), Titled "Helpful Reminders on Auditor Efficiency", it actually does talk about the sense of touch, but only in relation to the counting machine.

One bullet point states "Force yourself to key by touch..". What's they're talking about here is the notion of 'handkeying'. This is basically the art of entering in data on a counting machine without looking at it. This skill is similiar to typing and is a must for counters wishing to be efficient. Handkeying is probably the one time when the sense of sight is looked down upon, handkeying should only be done with one's sense of touch.

But there's more to inventory counting than just being able to handkey a counting machine, you also have to deal with the product itself. Further down on the 'Helpful Reminders' sheet we see the following points listed under Counting Techniques

Sight Counting - Recognize groups.
All "non-keying" time decreases your average per hour.
Pursue your job with a sense of urgency

Then there's the rules of thumb:

Keep your keying hand on the keyboard whenever possible
Count with your eyes, not with your hands
Use product size and shelf depth to assist you in determining quantities.

On the back of this sheet is even more helpful hints, most notably:

Always view the product from an advantageous angle.
When you must handle merchandise, do so as little as possible

And specifically under a heading for Financial Inventory

Merchandise is counted using appropriate sight counting method.

When I came to work for Quantum Services roughly 8 years later I was given a phamplet called "The Seven C's of the Audit Process". One of the "C" 's was titled "Counting the Store" it has the following bullet points:

Never compromise your accuracy and integrity
Count with your eyes
Count what's not there
Count with a sense of urgency
Use your QIC to count cigarettes, lottery and cups

I find the 2nd and 4th points strikingly similar to the tips I ran across working for RGIS 8 years prior, in fact the phrase "count with your eyes" exists on both sheets pretty much word for word.

The major theme present throughout these tip sheets is the notion of sight counting. The ability to simply observe how much inventory is present and let your counting hand react to it by entering in the appropriate data. The RGIS' tips seem to suggest that one's hands are meant for working the counting machine and not for handling the merchandise. This would seem like a reasonable approach to take for inventory counting, that is until you walk into a store an actually confront the way some merchandise is kept in a store.

There are some limitations to sight counting. As a coutner you're going to run into merchandise, that has to be touched in order to get a proper count. Below are some of the more common examples

Candy
In c-stores and probably to a lessor extent in grocery stores, counting candy is the bane of an inventory counter's existance. The candy gondola is the one part of the c-store that counters probably loathe counting the most. One of the most well known tricks to counting candy or gum is to take note of the box quantity when it's full and use that to determine the actual quantity present. In some cases you utilize the "count what's not there" technique. For a lot of the gum items this can be pretty accurate. Of course you still would have to worry about overhang (my term for extra merchandise placed on top of a full box) and boxes that sit inside other partially full boxes. Once you get down to the candy things get a little more difficult. Trying to determine what's missing out some candy boxes is not as obvious and overhang can be far more troublesome.

I've also noticed that its possible for extra candy bars to be stuffed into boxes without any noticeable overhang, for instance a box of starbursts can comfortably hold 39 bars even though it's designed for 36. One could use the sense of touch can be used to determine the depth of the product and how many go across, the rest is simple multiplication. I do strongly agree with one of the above techniques, "Always view the product from an advantageous angle". It's always easier and more accurate to count items at angle or from a side view where you can more easily see every single item, and this is exactly the problem with candy, you don't get a lot of good angles to view the product. It's always tightly packed onto the shelf, and usually contained in cardboard boxes. One way around this is to pull the box off the shelf and lift up the side to peek at a side view of the product

This allows you to see how deep it is and in some cases allows the counter to see pretty much every single bar. But then we move down past candy bars and into merkier areas, like candy 'packages'. Items like skittles, M&M's, or other 'bagged candy' is probably the hardest to count, because of the way the product can wind up in so many positions within the box. Here a side view doesn't offer much help, nor does the 'count what's not there' method offer a better alternative. The method i've usually employed is to dump the product out of the box, grab a handful and count it at the best possible angle and place it back in, and then go for the next handful. This method is a bit tedious, but accurate. Store manager will never complain about the way you count candy when you do this. The "count what's not there" technique, has never been a favorite of mine, for one the full box quantities are hot hard and fast rules about what "full' really is. When a box of candy has been jammed beyond capacity this method is essentially useless, and then for boxes that are partially full, sometimes the reamaining product is so disorganized that this method gets reduced to guesswork. Figuring out how many M&M's are missing from a box of 48, is not the most accurate way to count them. The product that is still there is something that I can touch and see, and actually 'count'. Sometimes it's better to deal with what is still there, not what isn't.

Tobacco
I'm pretty sure any experienced counter could tell you how many snuff cans can fit in a full slot on their display rack. I've come to find myself pushing back on these cans to confirm that a slot is truly full, or if some cans are stuck which does happen from time to time. Individual cigars fall into the same boat as candy, they come in boxes that make it difficult to get a good view of them. Usually I have to pull these out as well and view them from the side. A partially full box of cigars may be another example of where the "count what's not there" method gets reduced to guesswork.

Cigarettes
I've been to stores where the display cartons at the top of the cigarette racks are fake and I've been to some stores where they're real. What I've also noticed is that from a distance, the fake cartons look exactly like the real ones. Normally when counting cartons I'll run my hand over these to see if they feel real. I've also run into stores who see no problem in taking a pack or two out of the cartons only to put the rest of the carton back underneath the racks where all cartons are stored. The sense of touch will indicate how full these cartons are.

Pop
Generally pop, or beverage in general is easy to count, on the salesfloor sight counting can be very accurate, but when counting backstock in the back cooler, I've come across many 20oz cases of pop containing 23, 22, 20 or less bottles. And sometimes they're in the middle of a stack underneath full cases of 24. In these situations I like to push back on the bottles to get a sense if the shells are full or not.

Gatorade
Gatorade is a great example of something that gets counted where the counter may never actually see it, this is the case for the boxes stored in the back cooler. Much like pop a box on the bottom of the stack doesn't necassarily have to be full. However with merchandise completely encased in cardboard, obtaining accuracy may involve opening the box, to either see how full it is or to feel inside to see if it's full.

One theme that does appear in these examples is that the sense of touch is important in order to achieve some level of accuracy in counting. Running my hand over cartons of cigarettes is done for accuracy. Pushing back a case of 20oz bottles of pop is done for accuracy. Taking a box of candy off the shelf and lifting up the side is done for accuracy. Grabbing a handful of ciagrs and lining them up in your hand to see every single one is done for accuracy. But while I run my left hand across the cartons of cigarettes atop the cigarette display, my right hand is doing nothing, simply waiting to find out if the cartons are real before inputting data into my machine. It also has to wait when I push back a case of energy drinks, or stick my hand in a box of powerbars. Most of the time I spend feeling the merchandise will fall under the category of the 'non-keying time' which according to the "Helpful Reminders" sheet decreases my average per hour. Even though accuracy may pay off later down the road, a counting style predicated on accuracy will never be considered the most productive. Touching the product is time consuming and non-productive. That's the message behind the phrase "Count with your eyes, not with your hands" or "Count what's not there". To be productive one has to learn to trust their sense of sight more and more, to be able to look at a box of candy and say it has 27 bars in it. If the sense of touch is important for accuracy, then sight is important for productivity. As an inventory counter really both senses are important and need to be used often, by as you can see only one gets stressed on inventory services' tip sheets. If you want to have an idea of how accurate a counter is, just watch them count and take notice of how often their sense of touch comes into play.

The 1% Rule

Years ago when I was just starting out as an inventory counter with RGIS, I somehow ended up sitting shotgun to my district manager on a way back from a inventory with a van full of counters sitting behind us. The trip home was a long hour and 45 minutes trip mainly caused by the distance. During this trip my DM got to talking about all the different clients he's had to put up with in all these various stores. All of his accounts were extremely one sided tales, containing some level of contempt for the people he described "You've done 20 inventories, well that's a good week for me" was one memorable line. In response to one client who questioned the accuracy of his crew's work, he said as an aside to me and to anyone else who was listening "You know as long as it's within 1%, it's okay".

Eight and half years later, I was in a meeting with my boss and several other co-workers
from Quantum. The topic of counting candy came up, my boss mentioned several techinques for counting it, none of which included actually taking the candy out of the box and physically counting it, and at some point someone brought up the point that as long as it's within 1% it okay. This of course was followed up with a rather obvious condition, "but you don't ever say that to the client". To the question of what divides unauthorized from authorized estimation, here exists an unwritten standard to seperate the two concepts, or perhaps to better define what one of these concepts is. The 1% rule, as the above stories may hint at, seems used more to identify what is accepted than what is isn't. There are some questions to consider with the 1% rule.

1% of what would be the first obvious question. Whenever someone says "within 1%", it's not always clear what the 1% is being taken of. 1% of the total inventory? I've been to grocery stores that carry over $1,000,000 in inventory, 1% of that would be $10,000. For a c-store that has $150,000 in total inventory, 1% of their total inventory is $1,500, which could represent the same total as a small gondola. Being off by less than 1% for the total inventory can offer a lot of wiggle room of counting errors. A total inventory count for a grocery that's off by by $9,000 can still be within 1% for the entire store, a c-store count that's off by $1,400 can still be within 1% of the store's total inventory. There probably exists a lot of store managers who would find these variances too large in spite of what the overall percentage is. Perhaps the 1% rule gets applies to individual sections of the store, instead of the entire store. When applied to smaller portions of the store the notion of 1% can become far smaller. For a box that contains 36 candy bars, 1% is roughly a third of a candy bar. If a shelf had 10 boxes containing 36 candy bars and all were the same price, then counting that shelf within 1% would allow us to be off by 3 candy bars total. And of course that variance might be smaller if some of those boxes were not completely full. If a whole side of the gondola had let's say eight shelves like this, than for the entire side being off by less than 1%, will, conservatively speaking, mean being off by no more than 24 bars, still less than a full box. Of course how the the variance for sections gets used in relation to the whole inventory is still interesting to consider. I could be off by more then 1% for one section, but if I nail enough sections elsewhere I could still be within 1% for the entire store. Being within 1% for the entire store doesn't guarantee that every section carries that same level of accuracy. I've also thought that 1% is in reference to the store's level of shrink, but a counter in most instances would have no idea about the resultant shrink percenatge a certain count produces, so this wouldn't make much sense at all. I've also considered the notion of 1% of the stated book value. But once again a counter usually won't (or better yet shouldn't) know what the book values are, so this wouldn't make much sense either. Generally the 1% rule seems to be in reference to the actual value of the inventory that truly exists in the store. How this gets used, or how deeply it gets enforced is still not quite clear.

Another question would be why 1%? Why not 2%? or 3%? or even 5%? There probably isn't a satisfiable answer to these questions. But if the notion of a perfect 100% accurate count is too lofty of an ideal to actually achieve, than a line definitely has to be drawn somewhere, and it has to be drawn in order to deliver a high level of accuracy, while still allowing room for "ethical estimation". In an essay called "What causes Inventory Auditing Fraud?" written by Carl Jackson and Jack Henry that can be found on the NAAIS website under the "History of Inventory Services" link (an interesting read if I don't say so myself) they briefly refer to the concept of ethical estimating, saying "these types of estimates are controlled and do not affect accuracy". They proceed to give 2 concrete examples of when it's okay to estimate but offer no such examples of when it shouldn't be done. Addding that such measures wouldn't affect the "tolerance of accuracy required for a good count". Okay fine, counters don't have to be perfect, but how imperfect are they allowed to be? Jackson/ Henry don't mention anything about being within a certain percentage, but from my experience levels of tolerance can change from client to client, and from manager to manager. Some store managers will have a pretty high tolerance of accuracy (or should it be inaccuracy), and then there are some that have a fairly low tolerance. These types of managers usually get complained about alot within inventory counter circles. One of the examples that Jackson/ Henry cited was estimating a partially full box of bubble gum, when you know that it contains 480 pieces when full. From this perhaps comes the notion that the degree of difficulty comes into play when determining when estimation should be used. The problem with that is the notion of "difficult to count" can be somewhat subjective, different counters will have different conceptions on what is too difficult to count, and thus maybe different views on what can be ethically estimated. As I counter myself I'm probably more hardcore when it comes to actually counting merchandise than the average counter, I try to count as much as I can. I'll take the candy off the shelf, I'll dump the merchandise out of a dump bin, count it and throw it back in. I probably have a lower tolerance of accuracy than most people (probably to the chagrin of the companies I work for), and If I have a lower tolerance of accuracy than a store manager I know I won't have any problems with them. Some counters may look at a dump bin, say to themselves that it's too difficult to 'actually count', eyeball it and come up with a roundabout figure, justifying the whole process by saying that's probably close enough. The problem with the concept of "ethical estimating" is that it sends a message to counters that it's okay to cut some corners here and there during an inventory, and this can be a very slippery slope to get on. Adding the notion that their counts only need to be within 1% only further encourages such behavior. I don't neccesarily agree with the phrase that such practices "don't affect accuracy". Estimating does affect accuracy, maybe at times it doesn't affect it to the point where it creates any serious problems, but let's face it, estimating is not the same thing as actually counting it. Anybody can eyeball a box of bubble gum and say it has 240 pieces in it, however there is no certainly to this method. We have no way of knowing wheather this is right or not, all one can do with estimation is to claim that it's probably close and move on. If such practices don't affect accuracy then a counter could adopt a reasonable line of thinking that these practices could used more often without affecting accuracy, and that may not necessarily be true. The 1% rule is in some ways a license to cut corners when counting, to adopt a counting style that has a relaxed tolerance of inaccuracy. It would probably be inappropriate for inventory company supervisors to instruct their counters that it's okay to guess, but they apparently don't need to, all they have to do is remind us that as long as we're within 1% we're fine.

Of course how does anyone even know when a particular count is within 1%. Let's say for the sake of argument that we're trying to get within 1% of every section in the store. For a given section let's say I count, I dunno $527. Is this within 1% of the true actual amount of money in that section? How would we know? Wouldn't we need to know the true total to make such a claim? Should recounts be done to see if these types of claims are true? Maybe the 1% rule, strangely isn't about any actual numbers at all, but rather sustaining a belief that the way someone counts is acceptable and good enough. The 1% rule exists to offer validation for all the estimation techniques that get used during a count. The danger exists in wheather the 1% rule helps mold certain attitudes and counting styles with inventory counting. Eight years ago, I saw a brief glimpse into how this can affect a counter's approach to the job. Working in a book store for RGIS, we were capturing barcodes for all the books and recording a piece count for each area. For each area we were required to count back afterwards to verify that our count was correct. At one point a counter near me uttered a question I'll never forget "Do we have to verify at 100%?". Unfortunately for the counter who posed that question, the unwritten rules of estimating don't always apply.

Horseshoes, Hand Grenades, and...

"Numbers are pure and true, counting never is"
-Michael Blastland and Andrew Dilnot from their book The Numbers Game



There was a great line from an episode of the Simpsons many years ago. In this episode Marge had taken a job as a real estate agent. Initially she struggled to close any deals due to her honesty and integrity, leading to a confrontation with her boss played by the weasely Lionel Hutz. Lionel Hutz instructed Marge to bend the truth a little when making a sale, at one point he added that there’s The Truth(all serious and focused) and then there’s "the truth" (whimsical and head-bobbing). Lionel proceeded to tell Marge that she’d be fired
if she didn’t make a sale. This moment seems to describe a verycommon aspect of the working experience. From the outside we see want a company wants us to see. But behind that surface of shiny gloss and sheen lays the mechanics of how things operate, of the ugly brutality of business, and in some cases the layers of fraud that stay hidden from view. No matter how a company operates on the inside, it's important for a business to maintain a spotless public persona, especially to those on the outside looking in, who don’t have the access to see what really goes on. The phony, glamorous façade seems to be essential to business today, and one can see countless examples of this in the ever omnipresent advertising that exists today. Yet there seems to be one rather easy way to get past this layer of sheen, and that’s by working, by becoming employed with a company. In a lot of walks of life, there seems to be a Lionel Hutz moment at a certain stage in a job, when one realizes that things aren’t what they appear to be from the outside, when one sees how a business truly operates, and when one realizes ultimately what their goal is, to make the company they work for successful and profitable, and if they don’t they’ll be gone. The concept of the phony public facade is no stranger to the world of inventory counting. It might be more prevalent here than in most industries. I once applied for work with an inventory company called Quantum Services, the HR person who I interviewed with brought along some pamphlets and company information that she actually referred to as "propaganda"; a description that was not entirely inaccurate. Similar forms of propaganda exists on inventory services’ websites, and on the slogans of their inventory tags, from phrases like "Accuracy is our Primary Concern" to "A Company Committed To Service", to "The way it should be!". I have spent a decade working in the inventory service industry, and the biggest example of that phony façade that I see is in the notion of counting. No doubt that if Lionel Hutz were an inventory counter, he’d be talking to an unspoiled new hire saying that there’s counting and then there’s "counting".

The official public policy of auditing companies everywhere is that estimation is wrong and unethical and not to be tolerated. In a monthly letter sent out by Quantum Services they talk about several things that shouldn’t be done in an audit; taking short cuts, plugging numbers, estimation, and collusion. In other materials they offer tips like ‘never compromise your accuracy and integrity.’ Over the years I’ve collected numerous handbooks from RGIS and every single one has contained the same phrase:
"Unauthorized estimating or batching has never been, and never will be, permitted or tolerated in any event/inventory performed by RGIS"
Older versions of the handbook, used to have another phrase on the inside cover that read "NEVER ESTIMATE". Jack Henry, a Loss Prevention expert who once spent 15 years working in the inventory counting business, has a more realistic take on estimation. From a series of articles linked from the NAAIS website, Henry writes, "An inventory service that tells you they "never" estimate should not be hired. Not only do they estimate, they are lying to you as well". Okay, let's establish one thing right now just to get it out of the way; estimating is a part of the counting process. I myself have done it, and so has virtually everyone who’s ever held a counting machine in their hand. Anybody who's spent any decent amount of time counting inventories and who says that they never estimate is lying. Some level of estimation exists, and more importantly it’s tolerated in spite of what the propaganda says. The most disconcerting word from RGIS’ credo is "Unauthorized", this seems to allow some wiggle room for ‘authorized’ estimation to occur. There's a great blog called "Tales of a RGIS Auditor" written by a former counter for RGIS out in California identified only as the Misfit. Even on his blog you’ll see people talk about the right way and wrong way to batch. Quantum will talk about not using shortcuts, but in their propaganda will advocate a method of counting where one counts what isn’t there, which has the feel of a shortcut. Henry goes on to say that "Reputable inventory services do permit some estimating, yet stay within their code of ethics". I find this statement by Henry to be a little scarier than the first. Granted one has to be somewhat realistic in reagrds to inventory counting. Counting is not easy, and there's going to be a lot of challenging things to count in any store. The "never estimate" policy is extremely difficult to uphold. All one has to do is look at a chest full of ice bags, or a pile full of mulch to understand that even the most hardcore of counters will be forced to take a more pragmatic approach to counting every once in awhile. Estimating sometimes occurs out of necessacity, and shouldn’t always be interpreted as a nefarious act. An inventory service shouldn’t boast about never estimating, rather they should claim to estimate ‘less’ than any other service. The biggest issue with estimation is the frequency in which it should be used, where do we separate the "unauthorized" from the "authorized"? How 'pragmatic' should an inventory counter be? Where this line gets drawn depends for the most part on the service and the counters themselves, and too often it gets drawn primarily to serve the inventory service more than anybody else.

If an audit is a process that measures the amount of shrink in a store, then estimation is the purposeful inclusion of measurement error. The main reason estimation is done is to expediate the audit process in areas where exactness and great precision are not necessary. The most common and accepted form of estimation comes in the way sales adjustments are figured. When doing financial audits (especially in C-stores), counts will take place while the store is open for business, creating a need for some way to account for the sales that take place during a count. The most accurate way to adjust for sales is to run a sales report for a certain category or department, then go out and count that department entirely, further adjusting for sales since the sales report was run. At the end of this activity you will have a perfect sales adjustment to go along with the on-hand count. The problem with this method is that it’s time consuming and for certain departments it’s going to be impossible to adjust for sales perfectly do to the distribution of merchandise throughout the store, or due to high sales volumes. For instance, doing this for a category like "grocery" would be almost impossible. Plus if doing this for one department is time consuming, repeating this process for the rest of the departments in the store results in an absolutely insane way to go about doing an inventory count. The most common way to adjust for sales is to utilize the half-sales method. In this method a sales tape for all departments is run at the beginning of the count and at the end of the count. The adjustment takes all of the sales from the beginning tape and half of the sales during the count to account for the fact that some of the merchandise sold was counted. Mathematically this total can be achieved by adding the beginning and ending sales figures and dividing the sum in half. The level of error caused by this method is probably minimal for most departments. Although for departments like cigarettes and lottery, the perfect sales adjustment may still be preferred due to the high volume of sales for these departments, not to mention that these departments are usually kept behind the checkout counter, making it easy for the counter to monitor the sales activities during the count. But ultimately the half-sales estimation technique is accepted because it has been proven to be accurate, it is easy to implement into a counting process, and it allows the counter more freedom in determining how to count a store more efficiently.

From this we could judge an estimation technique by determining the resultant drop-off in accuracy caused by its utilization. The half-sales method in most cases won't affect the accuracy of the audit a great deal, but what about techniques employed in the counting process itself. Consider what information gets captured during an inventory count. In a financial inventory a counter needs to capture the department (or category), price, and quantity on all the items in a store. In a scanning inventory, barcodes can provide information like departments and prices, leaving the counter to only worry about the on-hand quantity. Estimation of quantities is as old as inventory counting itself. The idea that counters are going to do whatever it takes to capture an accurate count on frozen food, plumbing parts, boxes of Jell-O, candy bars or other hard to count items is just nonsense. Techniques for estimating quantities can include judging the size of the item relative to the depth of the shelf or bin that they’re contained in, or using the quantity of the box when full or using case counts, this gets done a lot when someone counts candy. But quantities aren’t the only thing that gets guessed at. There are numerous of instances were items are not priced, and counters generally don't do price checks on every single unmarked item. In financial inventories price estimation may be even more prevalent then quantity estimation. Unmarked items present another situation where estimation is used in the name of efficiency. In some instances, it would require too much effort and time to verify the price of all unmarked items in a store, plus given the notion that one can reasonable guess the price of an item based on past counting experience or similar items in the store that are priced, would suggest that this estimation method wouldn't affect accuracy that much. When working for Quantum, they actually instructed us not to use the store’s price scanners for one of our clients, arguing that they would slow us down too much. This was said in spite of the fact that we had never counted for this client before, were not well versed on the client's typical pricing standards, and also the fact that their price scanners were handheld devices that could go anywhere we could go, making it easier to implement price checks into the counting process. For a financial inventory, if the store doesn’t mark the price, they are essentially letting the counter decide how much it’s worth, and the overall accuracy of the audit depends on how well the counter can guess the prices of merchandise. Granted at times these can be educated guesses, but they're still guesses nonetheless. Also with unmarked items, it’s usually not one or two items that are unmarked, it’s a condition found throughout the store, especially in storage areas. The question then becomes how much of the store will end up getting estimated in this manner? Can a counter get to a point where they've estimated too much?

Another criteria by which we can judge estimation techniques, is by looking at the amount of merchandise that gets estimated in a store. It would be reasonable to say that the less stuff that gets estimated in a store, the more accurate the overall audit will be. If someone walked into a store and looked around the sales floor, backrooms, counter area, back cooler, and other areas of the store and then surmised a total of $120,000 (or any other total for that matter) with the proper breakdown for each department, this would probably represent the apex of unauthorized estimating. If a counter flat out estimates a given section of a store by either plugging a number or by pulling a number out of thin air based on the way a section looks, this also would be considered unacceptable. If a counter however guesses the quantity on a partially full box of $.25 pieces of candy this typically is considered okay. It’s easy for an inventory to defend this practice, because again it doesn’t affect the accuracy of the audit that much. The question though is how often does this technique get utilized by an inventory counter during an audit. Even further how many different types of estimation techniques are used and how much estimation is there in an inventory count. Most inventory services wind up doing what might be called scattershot estimation, where an inventory is estimated in small portions, but done multiple times throughout a store, so some stuff in one area gets estimated, some stuff over here gets estimated, some stuff over there gets estimated and the question becomes what is the net result of all this on the overall effect of the audit. At what point does the dose of estimation become toxic? How does one go about criticizing the overall accuracy of an audit without getting into specifics instances that the inventory service may be able to properly defend? Sure "glance" counting a box of candy will not make or break any audit, but when is that ever the issue? If that was the only time in an inventory count whan an item was estimated, then truly it wouldn't matter that much. But how often is this the case? How often does an inventory counter resort to estimation just once in an entire store? Counters are creatures of habit they usually wind up counting the same type of merchandise over and over again, and estimation becomes a habit that gets developed by the need for "pragmatism". Estimating inventory is akin to smoking a cigarette in that the real danger is in the habit, not in the singular act itself. A smart inventory service would seem to want to spread their estimation techniques out thin enough so that they will never be guilty of committing any major act of malfecious, and yet can leave counts that still look good enough to be accepted by the client. This seems to the objective of the inventory service, to produce numbers that are close enough to be considered correct and accurate, it’s not necessary to nail a count on any section, in order to get the client to accept your work. Why kill yourself to produce numbers that are dead on accurate, when you can get by with numbers that are ‘reasonable’?

Of course does accuracy really matter, when determining weather estimation techniques should be used or not? Accuracy is not the only issue in play here. Suppose an inventory crew gets to the end of the count and discovers that one section in the store has been missed. A counter could look at past inventory figures and plug in a number based on that. The figure that gets plugged in theory could be fairly accurate, hell it may even be spot on, the fact of the matter is this type of behavior will still be considered unethical and immoral and the reason for this has nothing to do with the accuracy of the end result. Instead it has to do with the concept of integrity. With integrity, the main concern is the manner in which merchandise is counted. How does the integrity of the counting process get judged?
One possibilty could be in the repeated and consistent accuracy and quality that a certain process brings. A low integrity technique can be highly accurate in a given instance, the question here is how often will a technique produce the same high level of accuracy. The notion that a technique can be successful repeatedly again and again is what’s key here. A counter can take a glimpse of a box of candy and estimate that it has 25 pieces in it, and this count may be accurate, but if this method was used again on other boxes, would those counts be accurate? If this method is used again on the next inventory for various boxes, how many of those counts would be accurate? If this method was used the next day, and each subsequent day in every inventory how often will this method be accurate? Each method or technique will come with a certain degree of error. If I employ a method where I pull the box off the shelf and take the candy out to count it, this method will be accurate but more importantly it'll be accurate far more times when it is used. Now there may exist some people who claim they could look at a box of candy and tell you how many there and do this accurately over and over again. Honestly I wouldn’t deny the existence of such people, being able to do that is a real talent, and there are probably are people who possess this ability. But with the idea of integrity, we can also consider the human factor. Just because counter A can look at a box of candy and accurately guess how much is in there, and can subsequently repeat this ability many times over, doesn’t mean that counter B can. The notion of repeated accuracy should also be applied across different counters, as well as across different inventories. A counting method that has integrity is one that produces accurate and quality results time and time again even with different counters doing the count. Even though we may use accuracy to gauge the integrity of a process, ultimately integrity isn’t about what number you come up with, but how you go about obtaining it. Integrity is about an attitude. It's is about having the desire to do things right, you have to want to get down and dirty to pull the candy out of the box, to open boxes to see if they’re full, to check to make sure you have the right price on an item. Integrity is more about doing what’s right or staying within a code of ethics, it’s a belief that this is the way things ought to be done. In any store there will be area that challenge and expose the integrity of the counter, weather it be the candy aisle, pluming parts in a hardware store, drawers full of undergarments, whatever. Maintaining one’s integrity in areas like these is difficult and hard, and more importantly time-consuming. And for the inventory service time-consuming is synanmous with money-consuming. The standard methods of counting usually encouraged by inventory services aren’t the ones that might be considered the most fundamentally sound or with the lowest degree of error, but rather the methods that encourage counters to be productive and most important profitable. Inventory services want to employ people like counter A, who possess the talent to estimate with great accuracy and precision. Honestly inventory services ought to have a boxed candy test for potential new hires. They can just sit new hires down in front of a few boxes of partially full candy, and have them "determine" how much is in each one. This is the way these companies want their people to count, and obviously the best guessers are the ones they want to put out in the stores. But ultimately no matter how much integrity one talks about or attempts to have in the counting process, estimation will always exist, it’s unavoidable. There is no perfect counter, always counting everything with absolute accuracy and precision, never taking shortcuts. Henry is right when he says that reputable inventory services do permit some estimating, the problem is unreputable services will permit even more.