What is Inventory Cycle Counting?

Cycle counting makes inventory management more manageable by using select inventory to speed up auditing by breaking it into smaller sample batches. Discover below the best practices and different types of inventory cycle counting, such as Pareto, usage, and opportunity methods.

What is Cycle Counting?

Cycle counting is an inventory management method that involves regularly counting small sections of inventory on a rotating schedule, rather than counting all physical inventory all at once. This practice can help companies:

Identify and correct any incorrect in-stock data Verify inventory accuracy without disrupting operations Maintain up-to-date records of inventory

Best Practices

Many small businesses keep inventory manually, filling in spreadsheets after taking a physical count. While this can work for new operations, the metrics can quickly fall behind as the business grows. Manual data entry can lead to mistakes when workers miscount. Cycle counting adds automation to inventory control. By following cycle count procedures, you can optimize your operations to reduce inaccuracies from human error.

These are the main steps for an effective cycle count process can be broken down as:

• Organize: Create an effective storage system at your warehouse to facilitate easier counts, such as a barcode or SKU scanning system that can automatically scan inventory items.
• Generate List: Compile a list of which items must be included in the count according to your preferred method.
• Audit: Perform the count and verify the results are accurate over a set period of time.
• Review: Check the counting process for improvement and collect the relevant inventory data.
• Repeat: Continue performing counts until you achieve accuracy (over 90%).

No matter how advanced your cycle count method is, you will still need to take a physical inventory at some point. This might be done quarterly or annually, depending on the scope of your warehouse or retail operations.

Implementing a cycle counting program in daily operations can save you time and money. Finding the proper counting technique will depend on the number of items you have, how you store and ship orders, and what products you consider most valuable to your bottom line. Improve your warehouse management system with the best cycle counting methods.

Types of Cycle Counting

There are many cycle counting methods, and the one that works best for your business will depend on various factors. The most well-known types are:

ABC Analysis

The ABC method is based on the Pareto Principle or the 80/20 rule. It categorizes items into three categories: A, B, or C. Items in Class A are counted the most, while B and C are counted less frequently.

Category A: High-value or high-sales volume products that account for approximately 80% of revenue and 20% of total inventory. Category B: Medium-value. Accounts for 15% of revenue and 10% of total inventory. Category C: Low-value. Accounts for roughly 5% of total revenue but 70% of total inventory.

This analysis helps to ensure that the most important inventory is accurately tracked. Regularly counting parts of your inventory allows you to quickly identify any issues.

Usage

The usage method prioritizes inventory that has the highest turnover or usage rates. This means the items used more frequently should be counted more often to ensure accurate stock counts.

Using this method, the items that are sold or used most often create the audit sample since they are the most likely to be moved about the facility during fulfillment. This can save valuable time during counts since items that are not sold frequently won’t have to be counted as often.

The usage method is popular for seasonal businesses which prioritize different products throughout the year.

Opportunity

The opportunity method counts inventory strategically during regular warehouse operations rather than on a fixed schedule. This method counts items that are already being handled, leveraging existing processes to minimize the need for additional effort.

These counts are typically conducted when: Items are being received Items are picked for orders Stock is being replenished Inventory reaches a predefined reorder point

Statistical Process Control

The statistical process control method performs cycle counts only on inaccurate inventory. For example, a product in high demand may be counted to ensure it is in stock, while less popular items are counted in more traditional ways on a daily or weekly basis. This method saves valuable resources by prioritizing the inventory that matters most.

Although this method corrects discrepancies, it can help you pinpoint issues in your inventory management process.

Location-based

This cycle counting method involves counting inventory in defined areas or zones of a warehouse. Since related products are often stored and sold near each other, this method is useful for determining how a selection of goods is performing. This type of inventory audit can work well in warehouses operating with first-in, first-out (FIFO) or last-in, first-out (LIFO) rules.

However, this method carries some risk, as it depends on products being correctly placed at all times. Any last-minute adjustments to the supply chain can result in inaccurate counts of items not being where they should be.

Hybrid

The hybrid counting cycle combines multiple methods to create a system tailored to your company’s needs. This approach aims to utilize the strengths of numerous cycle counting methods and mitigate their drawbacks.

Which items are included in the audit will vary depending on your own select requirements. What is counted can change based on new demand or internal data as determined by ABC analysis.

Why is Cycle Counting Important?

Cycle counting offers numerous advantages, including:

Improved Accuracy: By regularly counting parts of your inventory, you can quickly find and fix any discrepancies. This way, you can maintain high inventory accuracy year-round. Minimal Disruption: Unlike a full physical inventory count, this counting can be performed during regular business activities. This allows you to remain productive while ensuring that your inventory is accurate. Cost and Time Savings: Cycle counting requires less time and labor, freeing up resources to focus on other high-priority tasks.