If you’re a company that buys and sells inventory, you need to perform inventory counts to track and record all products within your warehouse and available for sale. Manually counting all inventory in your warehouse verifies the number of inventory items and the condition the items are in. This allows your company to determine the real count of inventory in your warehouse (which can sometimes be different from what you think you have, or what your software thinks you have). Without proper inventory management, your business is susceptible to overstocks and out-of-stocks. Poor inventory management can also result in a loss of money due to misplaced or improperly sorted inventory, inaccurate lot counting and employee theft. Most businesses perform a full physical inventory count once or twice a year as they are a time-consuming and manual process. Therefore, it's also a good idea to perform cycle counts multiple times a year to allow your business to check how well your inventory processes and systems are working.
With cycle counting, you count a small subset of inventory on a specific day which helps to audit your full inventory set. Cycle counting helps you compare how accurate your inventory records are within your ERP software, to what product you have in your warehouse.
How Often Should You be Performing Cycle Counts?
Many businesses will do a full physical inventory count once or twice a year, and then count a smaller group of products on a more regular basis. You can choose to perform a cycle count as often as you want depending on your business as they are much less disruptive. You can determine how often to do a cycle count based on your inventory turnover rate and how accurate past inventory counts have been. Another factor that can impact the frequency of cycle counts is the type of products you sell. For example, if you sell lot tracked items with expiry dates or seasonal items, it is a good idea to perform cycle counts more often. This will help to ensure you reduce the amount of product spoilage and dead stock.
Cycle Count Best Practices
When performing cycle counts you need to decide the best method for doing so. For example, do you count by product SKU or by warehouse location? You can also schedule more frequent cycle counts for specific areas of your warehouse or specific SKUs, and then perform a full physical count of all inventory at the end of the year. The most common cycle counting methods include the ABC Method, Control Group Cycle Counting and Opportunity-Based Cycle Counting.
ABC Cycle Counting
ABC cycle counting uses a class system to determine what inventory to count. The idea is that all your SKUs get categorized into different classes. You can base the class on product value, usage/sales volume or some other factor. The Class A items are then counted more than the B items which get counted more than the C items. The classes you choose will depend on what is most important to your warehouse and business.
Control Group Cycle Counting
Control group cycle counting is based on identifying any issues with the counting process. It allows warehouse staff to choose which sections of the warehouse or product SKUs they want to count. With this method, you count a small group of items multiple times in a short period which helps to identify any issues with the count technique. You then continue to count small groups of items until you're confident in your cycle count process.
Random Sample Cycle Counting
As the name implies, random sample cycle counting is a cycle count of random inventory items in your warehouse. This is beneficial when you stock a large number of similar items. If you choose to count the same number of items each time, it will result in you counting some items more often than others. Another option is to exclude items previously counted from being counted again until all items in your warehouse have been slowly counted over time. This means that each count after that selects inventory from a diminishing number of items.
Whichever cycle counting method you choose, remember that it is important to mix up your cycle count schedule. This helps combat the unfortunate reality that is employee theft.
Benefits of Cycle Counts
For wholesale distributors, there are many benefits to cycle counts.
- Reduce Holding Costs. When you know the true count of your inventory, you’re able to reduce holding costs by only stocking enough items to meet demand.
- Improved Shipping Processes. When you maintain accurate stock levels, customers receive product more quickly with fewer issues.
- Better Purchasing Decisions. With proper inventory management, you have better insight into what products are selling well, what products aren’t and how much to buy from your suppliers.
- Accurate Financial Management. Managing inventory costs and depreciation is easy when you know what products you have on hand.
- Better Forecasting. Tracking inventory allows you to analyze historical data and predict trends to make better purchasing and selling decisions in the future.
- Happy Customers. If customers can rely on you to have the product they need when they need it, it will increase their loyalty to continue buying from you.
- Improve Warehouse Operations. Cycle counting allows you to monitor and sanity check your systems and processes for accuracy. Are you picking product in the best way possible? Are you putting items away correctly? Are products labelled properly?
You can take advantage of warehouse staff idle time by getting them to perform cycle counts. ERP software that supports cycle counting allows you to manage and track your progress – by injecting a range of products or by selecting a range of bin locations and then printing off a count sheet. With more advanced WMS tools, you can count product using wireless barcode scanners. This reduces any human error with pen and paper methods and helps your warehouse become more environmentally friendly.