Streamlining inventory management through cycle counting
Recording stock numbers takes time and resources you don’t always have. Warehouse cycle counting makes it manageable.
Conducting a cycle count allows you to verify your stock levels throughout the year rather than counting everything at once. It’s a more efficient and pragmatic alternative to the traditional warehouse counting strategy.
If you’re looking to simplify your inventory accounting processes, here’s everything you need to know about cycle counting.
What is cycle counting?
Cycle counting is an inventory tracking process that involves counting only one section of inventory at a time. This lets you maintain accurate stock records and continuously monitor product levels without disrupting normal operations like full counts do.
To use this periodic method, you might count a different section once a week, every week. Over a month or two, you’ll have counted your full inventory. This is much faster than a full physical count, which might happen once a month or once a quarter. It also leads to less disruption, a reduced likelihood of shortages, and better customer service because it’s a smaller time investment for a greater payoff.
Many businesses use inventory management solutions to support cycle counting and further speed up the process. For instance, you could use handheld scanners that feed data to a centralized inventory management platform to count items for you. This approach accelerates accounting processes and avoids human error.
Physical count versus cycle count: What’s the difference?
The main differences between physical counts and cycle counts lie in their approach and impact on operations. A physical inventory count usually involves counting all inventory items at once, which can take a whole day or multiple days.
Since they’re more disruptive, full physical counts typically happen once or twice a year — so if there’s an error with your records, you might not spot it for months. Frequent cycle counting is faster and avoids mistakes so you can better serve customers.
How to conduct a cycle count
Before starting a cycle count, you’ll need to consider three critical inputs:
- Number of SKUs: Determine how many products you want to count in each cycle.
- Counting resources: Identify how many team members you have available to conduct counts.
- Counting frequency: Determine how many SKUs you need to count each year and how often to count them.
Knowing these numbers helps you plan out your cycles accordingly. Then, you can complete the following six steps when cycle counting inventory.
1. Review your records
Carefully review your records and correct any errors on existing inventory transaction records. These numbers become the comparison for your counts so the team knows what to look for.
2. Upload a cycle count report
Next, create a cycle count report. This report should collect transaction records and tell you how much inventory you have according to your tracking system. Investing in inventory management software that supports cycle counting workflows is the easiest approach, but you can create a generic fillable template if that works best.
3. Begin your count
During the count, team members should review locations, descriptions, and quantities of each SKU listed on the report. Conduct your counts systematically to avoid errors and omissions. Ideally, the count listed on the report should match what’s sitting on your shelves.
4. Reconcile any discrepancies
Compare the actual inventory against recorded figures to identify discrepancies. If differences exist, investigate and pinpoint their cause.
5. Adjust as necessary
Make the necessary adjustments to your inventory records based on the cycle count findings. This way, your records are accurate.
6. Calculate and repeat
Evaluate the cycle counting process, adjust your strategies as needed, and plan the next count. Regular repetition is key to maintaining accuracy over time.
Types of cycle counting inventory methods
Cycle counting is a relatively straightforward inventory accounting method, but there are several variations within it. Compare these methods to identify the best option for your business.
ABC counting method
The ABC counting method is a good choice if your warehouse carries products of varying value. This strategy is based on the Pareto Principle — also known as the 80/20 rule — which states that 20% of your products drive 80% of your profits and vice versa. While the Pareto Principle is based on a broad generalization, it offers valuable guidance regarding cycle counting procedures.
When using the ABC approach, group your products into three categories: A, B, and C. A items are your highest-value goods, B items are mid-tier products, and C items are the least valuable, all in terms of profit for your business.
Next, structure cycle counts to favor high-value products. For instance, you might count products in the A category once per week, B category goods monthly, and C products quarterly. Since A items go in and out most often, there’s a larger chance of inaccuracies, making them more of a priority to count.
Usage-based counting method
The usage-based counting method prioritizes items that are frequently used, purchased, or otherwise manipulated. Like the ABC method, you count less popular items at broader intervals. The idea is that each product interaction creates a potential for inventory variance, so more interactions equals more counting.
Hybrid counting method
The hybrid accounting method blends the ABC and usage-based strategies to prioritize your highest value and most active items. This approach is necessary when you have a large inventory that features diverse A- and B-class items.
The basic structure resembles the ABC cycle count method, but it breaks categories down into more options according to usage. You might count your most popular A products in weekly cycles and slightly less popular A products bi-weekly.
Opportunity-based counting method
The opportunity-based counting method prioritizes counts at specific stages in your supply pipeline. You identify triggers that warrant a cycle count and conduct inventory reviews when those triggers happen.
For instance, you can define your reorder point as your cycle count trigger. Conduct a count anytime inventory levels are low enough that you need to reorder.
Geographic counting method
Geographic counting methods help large companies count products in large warehouses or storefronts. The goal is to identify problematic areas within your warehouse or supply chain and give them extra attention, but you can also conduct random geographic counts to better detect theft, spoilage, or other issues.
6 inventory cycle counting best practices
Mastering the art of cycle counting improves everything, from manual reordering to organizing your stockroom. Here are a few best practices to help simplify your strategy:
1. Divide and conquer
Group inventory into relevant categories, like value or product type, and choose the right counting frequency based on the product’s importance to your organization. Segmenting your inventory in a logical way sets the stage for more efficient and focused counts.
2. Create a schedule and stick to it
Develop and adhere to a cycle counting schedule that suits your business operations. Do your best not to miss scheduled counts, because otherwise, inventory discrepancies might compound.
3. Don’t rely on randomness
Random counts can be beneficial when using the geographic counting method, but they’re often hard to track and plan. Schedule most cycle counting procedures carefully to account for all inventory as accurately as possible.
4. Prioritize A products
Focus on high-value or high-turnover items to maximize the impact of your counting efforts on inventory accuracy. The more often you access, sell, or otherwise interact with products, the greater the odds of a discrepancy.
5. Train your team
Familiarize your team with cycle counting procedures, emphasizing accuracy, consistency, and attention to detail.
While teaching them about the process, remind them that honesty and accuracy are more important than inventory that matches the records. It might be disheartening to report mismatched numbers, but it’s the best way to ensure correct inventory counts down the line.
6. Always double-check your work
Take the time to double-check counts and confirm your inventory records. It’s an extra step, but it’s necessary for accuracy.
One method is to assign two people to each zone. After each person counts the goods in that zone, they compare results. If the results don’t match, conduct a recount until they reach a final, accurate number.
Revolutionize inventory counting with Fishbowl
Cycle counting is a valuable addition to your inventory management strategy. But no manual counting process is completely airtight.
To elevate the accuracy and reliability of your inventory management strategy, invest in a real-time tracking solution like Fishbowl.
With Fishbowl, you can ensure accurate stock levels, reduce errors, and facilitate ongoing stock checks. Fishbowl’s QuickBooks integration further promotes workflow transparency by keeping your inventory and financial data in the same place. Schedule a demo today to learn more.