One question we are asked repeatedly is when should I perform a physical inventory count also known as a stocktake. There are several circumstances that call for a physical inventory count and it is recommended that each company documents these requirements to ensure they are followed consistently.
1. When a drilling rig or plant is reactivated after a stacking or turnaround period.
We have all seen cases where the standard procedures for material control were not followed in these non-operational times. Take a drilling an offshore drilling rig for example, where several are near each other and parts are used off of all of them to maintain all of them. In many cases, items are removed from the warehouse without being logged in the inventory system. The inventory system may not even be live on the rig during these periods.
This control should have a time limit if it is to provide any value, e.g., within 90 days of the reactivation of a facility/unit all inventory must be counted. In short, a stocktake should be an integral part of the rig reactivation process, so you know exactly where you stand.
2. Before or after a facility/unit/company is acquired.
With many units holding tens of millions of dollars in inventory it is critical that the new owner knows what they have purchased and the condition of the same. We see cases, where the inventory reported, is materially different from what was reported to the new buyer. Even in cases where the quantities are mostly correct the condition of the items may mean that a large percentage needs to be disposed of and reordered.
3. When a new manager takes over the cost center a stocktake should be performed.
This step is also regularly overlooked and it can come back to haunt the new manager months or years later, well after the period of blaming the previous person would be accepted. In this time of lower activity and associated contracts, it is imperative that we have our critical spares on board if our system says we do.
This control should have a time limit if it is to provide any value e.g., within 90 days of a manager assuming control of a facility/unit they will ensure a full stocktake is performed. Don’t let the challenges of doing a full physical inventory count stop you from preventing problems in the long run.
TIP: When you visit your facility take the time to stop by the warehouse for a visit and do a quick spot check of the inventory management. You may want to use our rig warehouse checklist
4. When you are required by local regulations.
In some locales, it is a requirement of the city, state, or federal governments to perform stocktakes. This is required usually to provide to the taxing authorities. Because improving inventory accuracy and efficiency in the oil and gas industry is our area of expertise, using us is the best way to meet these requirements.
5. In the absence of a cyclic inventory count program.
If a company does not perform a cyclic inventory counting program we always recommend they consider one but if they don’t an annual stocktake should be performed.
6. If the company units/facilities have large inventory variances during the cyclic inventory counts or it is believed that a unit/facility is misreporting true variances.
If you have warehouse personnel reporting large variances, this is relative to your industry and business intelligence and you should complete a physical inventory count. This is especially true in offshore drilling where the warehouse is in the middle of the ocean and only one or two personnel ever perform inventory transactions.
Misreporting inventory variances is a common occurrence in a fly-in, fly-out environment, where it is easy to blame the other crew for the lack of transactional discipline e.g., not issuing goods in a timely manner or at all. Nip this problem and other inventory nightmares in the bud by outsourcing us to do a complete physical inventory count on a regular basis.