In a world where warehouse theft, stock-outs, and fragile inventory management are an ever-growing concern, traditional audit methods may seem like an archaic tool, wielding a sledgehammer where a scalpel is needed.
A full shutdown for physical audits every quarter might work for a mom-and-pop store, but imagine the chaos, delays, and potential financial catastrophe it could unleash on your thriving online empire. Not to mention the human errors, inaccuracies, and inefficiencies that traditional audits harbor within their folds.
Modern eCommerce businesses use inventory cycle counting, a calculated and ongoing method that offsets the burden of traditional audits and is tailor-made for the digital age.
This blog opens with Inventory Cycle Counting, highlighting the meaning, process, advantages, and multifaceted methods of this smart method of warehouse inventory management
What is the Meaning of Inventory Cycle Count?
Inventory Cycle Count is an ongoing system of rotating product counting in a cyclical schedule. Think of it as dividing the inventory into manageable sets; each counted methodically and periodically without scrutinizing the whole inventory.
Unlike traditional audits that require an all-hands-on-deck approach, where you close up shop and count every single item, Inventory Cycle Counting works seamlessly with your day-to-day operations, making it less of a chore and more of a habit.
While small businesses with limited products might not see the full potential of this method, the true magic of Inventory Cycle Counting unfolds in large warehousing teeming with an extensive array of products or different categories of goods. The complexity of managing diverse inventories can be a logistical nightmare, but Inventory Cycle Counting turns that challenge into an opportunity.
How to Calculate Inventory Cycle Count?
Determine the Frequency
In inventory management, timing is everything. Determining the frequency of cycle counts is the foundation of successful inventory management. This involves a deep understanding of the business’s needs and the complexity of the inventory. By evaluating item criticality and turnover rates and aligning frequency with industry standards, a company can decide on a daily, weekly, monthly, or even custom frequency that perfectly fits its operations.
Define the Counting Method
Choosing the right counting method is similar to selecting the right tool for the job. Whether it’s ABC, Usage-Based, Hybrid, Geographic, or Opportunity-Based, the choice must align with the business model, types of inventory, and specific needs.
Select the Counted Items
Selection is key. Determining the specific items to be counted in each cycle ensures the accuracy and efficiency of the counting process. Applying the chosen method, businesses can prioritize items by value, location, usage, or specific opportunities. This strategic selection streamlines the counting process and focuses resources where they matter most.
Schedule Counting Days
A well-planned schedule is vital for minimising disruption to operations. By coordinating with relevant departments and staff, cycle counting can be seamlessly integrated into the daily workflow. Flexibility to adapt to unexpected events or changes ensures that the schedule is a living document, able to respond to the realities of a dynamic business environment.
Prepare Counting Sheets or Software
Preparation is half the battle. Developing or procuring counting sheets, forms, or software tools that are customised to inventory categories and counting methods sets the stage for success. Training staff on proper use and data entry ensures that the tools are not only ready but wielded with precision.
Conduct the Cycle Counts
Execution is where the rubber meets the road. Conducting the counts according to the planned schedule, utilising trained staff, and following established procedures guarantees accuracy and completeness. It’s here that the planning and preparation pay off in an efficient and effective count.
Compare Counted Quantity with System Records
Comparing the counted quantities against existing inventory records shines a light on discrepancies, variances, or unexpected results. Investigating causes for any differences, whether it’s theft, loss, or data errors, ensures that the integrity of the inventory is maintained.
Adjust Inventory Records
The final step is to adjust the inventory records to reflect the actual counts. This involves documenting reasons for adjustments and maintaining a log for transparency. Integrating these adjustments into the overall inventory management and reporting systems solidifies the cycle count process as a key component of the business’s inventory strategy.
Advantages of Inventory Cycle Count
Non-Interruption of Warehouse Operations
Traditional audits often bring the entire warehouse operation to a halt. Inventory cycle counting is a system that has revolutionised inventory management by allowing ongoing operations. Unlike traditional audits that require a complete shutdown, cycle counting focuses on segmented and scheduled checks. This ensures that the counting process can be handled during business hours without interrupting the workflow, and this practice also benefits order fulfillment.
Increased Flexibility and Customisation in Counting Approach
Traditional audits often follow a rigid approach that lacks adaptability. On the other hand, inventory cycle counting brings much-needed flexibility to the inventory management system. It offers over half a dozen variations tailored to a company’s specific needs and objectives.
Higher Accuracy in Counts, Nearing 100% Confidence
In traditional audits, inaccuracy is often inevitable, and complete confidence in inventory data can be challenging. However, inventory cycle counting allows more accurate and diligent checks since it is not contingent upon an all-at-once approach. Frequent counts, especially when tailored to high-value or high-activity products, approach a near 100% confidence level. Perfection may not be attainable, but a robust cycle counting system brings it within reach.
Human Factor and Employee Engagement
Traditional audits can be stressful and burdensome for employees. Cycle counting alleviates employee pressure by breaking down the task into manageable subsets. It makes inventory tracking less of a chore and promotes a more engaged and satisfied workforce.
Integration with Technology and Best Practices
Modern inventory cycle counting leverages technology like barcode scanning systems and digital inventory management software. These technological integrations are an ideal example of smart warehousing which speeds up counts and reduces the possibility of human error.
Methods of Calculating Inventory Cycle Count
ABC Counting Method
The ABC counting method is a well-regarded approach that categorises inventory items into three classes: A, B, and C.
Class A represents the items with the highest value, usually contributing significantly to total revenue. In contrast, class B consists of objects with medium value, and class C encompasses those with the lowest value.
By focusing on the highest-value items, companies can ensure that the most critical products are always available. This approach is ideal for businesses with a wide range of products, such as electronics retailers, where specific items may have higher profit margins.
Usage-Based Counting Method
The Usage-Based counting method emphasizes inventory items accessed, sold, or consumed more frequently. This method tailors inventory management to actual demand by concentrating on the movement patterns. This is particularly suitable for grocery stores, where certain perishable goods may move faster than others.
Hybrid Counting Method
The Hybrid counting method represents a comprehensive approach by combining the principles of both ABC and Usage-Based methods. It offers a balanced perspective by considering both the value and frequency of movement. This method could be beneficial for complex businesses with diverse inventory, like multi-category online marketplaces.
Geographic Counting Method
Geographic counting targets inventory located in specific physical locations within warehouse storage This method can be a lifesaver in large facilities where geographical organization plays a critical role. For example, a furniture retailer with multiple sections may adopt this method to monitor each area thoroughly.
Opportunity-Based Counting Method
The Opportunity-Based counting method capitalizes on key events within the logistics chain, such as receiving new shipments, product returns, or other significant transitions. This allows for timely and situational inventory counts that align with the natural flow of goods. A typical application might be in an e-commerce warehouse where returned items trigger an immediate count to update availability.
Conclusion
In an age where even a minor stock-out can lead to a loss of customer trust, the near 100% confidence that cycle counting offers is nothing short of a lifeline. Cycle counting has proven to be an approach that can be custom-fitted to different industries and sizes.
For eCommerce businesses online sellers, and anyone in the modern retail business, inventory cycle counting stands as a guiding way to greater efficiency, accuracy, and success. It’s the future. And it’s here. Welcome to the new era of inventory management.
FAQs
What is an example of a cycle count?
An example of a cycle count is a daily counting process where a company with 1,500 SKUs needs to audit its entire inventory over six weeks. By focusing on four or five specific SKUs daily, the company can systematically tally its entire inventory within the specified time frame, ensuring accuracy and efficiency without interrupting regular warehouse operations. This targeted approach exemplifies the precision and agility of cycle counting in inventory management.
What is the difference between cycle count and inventory count?
A physical inventory count involves counting all stock in a facility, usually once or twice a year, often requiring closure or disruption of normal operations. It’s suitable for companies with minimal inventory. On the other hand, cycle counting counts small, preselected sections of inventory multiple times a year, sometimes as frequently as daily.
What is the KPI for cycle count?
Common KPIs for cycle counting include:
Inventory Accuracy: Measures the correctness of inventory records against physical counts.
Count Frequency: Evaluates how often items are counted within a specific timeframe.
Count Variance: Assesses the discrepancies between the counted and recorded inventory.
Count Adjustment: Highlights the magnitude and frequency of changes made to inventory records post-counting.
Count Efficiency: Gauges the speed and effectiveness of the counting process.
What is the inventory cycle?
The inventory cycle refers to the amount of time it takes for a company to produce and deliver an order from a customer. Measured in days, it quantifies the speed at which raw materials or components are transformed into a sellable product, encompassing the entire manufacturing or assembly process from start to end.
