Inventory is a vital piece of your business, but the actual process of keeping track of inventory can be intimidating and downright scary. Most small- to-medium-sized businesses take a full physical inventory count once a year. The truth is that so much can go wrong in between the physical inventory counts that goes unrealized until the next full physical count. Inventory shrinkage can and will happen more than you think – damaged products, employee theft, and manual entry errors for example. How can you combat these issues without shutting down production on a continual basis? Cycle count.
What Processes Actually Constitute Cycle Counting?
Cycle counting is the process of counting a small amount of your inventory in the warehouse each day or week. By doing so, you can cycle through the entire inventory on an ongoing basis which is the most effective procedure to take stock of what’s currently in a given warehouse. It is a continual process of counting and verifying inventory information against your system counts and the most effective procedure to take stock of what’s currently in a given warehouse. Say you have 1000 SKU’s that need to be counted. Rather than counting all 1000 at once, count 100 SKU’s every week over the course of 10 weeks or come up with your own cycle counting schedule. Cycle counting items more frequently cuts down the time between physical inventory counts and gives businesses better opportunities to address any inventory discrepancies that may pop up. If inventory needs to be written off, it can be done at a lower cost spread out over the year rather than a large expense once a year.
Types of Cycle Counting
There are several cycle counting methods to use in your inventory, each one determining the items that are being prioritized, such as counting high-priority inventory more frequently than other items.
- By Usage: this cycle counting method focuses on inventory that is more frequently used or if being out-of-stock would create significant business disruption.
- By Area: Cycle counting inventory based on its physical location, department, floor area, set of racks, bins, etc. It’s a convenient way to cycle count.
- By Sales Ranking: this cycle count approach prioritizes the greatest value in inventory, based on the Pareto Principle that 20% of the SKUs in a warehouse usually account for 80% of sales. The items are grouped into categories based on their value and organize cycle counts in that order, counting the highest value more frequently than the lower ones. Keep in mind, these groups may shift in value over time.
- Random Counts: randomly selecting SKUs for sampling throughout the warehouse
Warehouse Cycle Counting as an Inventory Management System
If you choose to implement cycle counting as a way to improve inventory management, come up with a schedule and stick with it. Choose what time each day, or which day of the week you will count and make cycle counting a habit, part of your management strategy. The full benefits of cycle counting won’t be realized unless you keep up with it. Before counting for the day, make sure that all receipts and orders have been updated when you start your counting. As with many manual processes, the risk of human error does exist. To greatly reduce this component, consider using barcode handheld computers to perform inventory counts. By scanning rather than manually recording part numbers or serial numbers, the risk of human error substantially decreases.
