Inventory Management Techniques: Cycle Counting

Mark Canes

Cycle counting often comes up in discussions surrounding proper inventory management, but what does it mean and how do you incorporate it into your business processes? In this article I'll attempt to demystify the term and further explain how regular cycle counting is important for small and large companies, for better inventory management.

What is Cycle Counting?

Cycle counting involves regularly counting a small subset of inventory at a specific location on a specific day, with the intent of cycling through the entire inventory over a period of time, and then repeating. These small subsets are counted everyday until you have accounted for everything in the warehouse.

It is a tool to monitor variances in inventory. With any company buying and selling product, there will often be some sort of variance between the inventory items you have on file vs. what you physically have in your warehouse.  This is a result of product getting misplaced, extra items being sent out with bulk orders, human error, shrinkage, etc.

Determining this variance only at the end of the year can result in greater discrepancies and therefore shock from management.  Regular cycle counts help your business keep a closer eye on this variance and make necessary process changes according to the results.  Ultimately, regular cycle counting should result in detailed procedures that yield very low variance levels and a high level of inventory accuracy.

How to Set up Cycle Counting at Your Company

Determine When and What

The best way to get cycle counting set up at your business is to start by determining how frequently you want to run cycle counts, and which inventory you actually want to count.  Not all inventory needs to be counted on a regular basis but a best practice is to count those products that are of higher value, have higher movement volume or that are critical to business processes.

Alternatively, many businesses will simply start at one end of the warehouse and then make their way through to the other end, counting different bins and shelves until all inventory items have been accounted for.  Even in this situation it may still be necessary to re-count certain products more often.

In an ideal world, you want the variance level to be zero and so cycle counts can help you monitor how far you fall from these targets.  Performing routine cycle counts enables you to verify inventory accuracy, identify the occurrence of inventory errors and then manage and fix the root cause of those errors.  This will then allow you to put in place proper processes for managing errors and reducing them.

Benefits of Cycle Counting

There are many benefits to regular cycle counting including:

  • Quicker inventory counts which are less disruptive to daily operations. There is no need to fully shut down your warehouse for long periods of time in order to count inventory.
  • Ongoing insight into inventory accuracy which results in more timely error correction.
  • Continuous process improvement by closely monitoring inventory and adjusting procedures regularly.

There are several other benefits of cycle counting, but many of them trace back to benefits seen from using an automated inventory management system in general, such as:

  • Less time spent by employees counting inventory and correcting mistakes
  • Overall reduction of errors
  • Higher accuracy of inventory on hand
  • More satisfied customers as a result of better inventory management and fewer shipping errors
  • Ability to process more orders because of more accurate inventory levels