What is Cycle Counting?
Cycle counting is an inventory tracking process that counts only one section of the inventory at a specific time. Instead of counting the entire inventory, which could take days or weeks to complete and may need to halt the supply chain, cycle counting counts a specific section of the inventory at a specific period.
Using inventory cycle count, you have to count a different section every week or a few days. Following this approach will let you count the entire inventory over a month or two. This approach is speedier to count the inventory compared to physical count, which occurs once a month or after a prolonged period.
Cycle counting also reduces error chances, disruption, and inventory shortages. Simply put, it is a time-saving effort that eradicates the need of halting the entire supply chain and provides a quick reference count to check the inventory accuracy.
Cycle Count vs. Physical Count: Key Differences
A physical count is a process of counting all the stock in a warehouse at once, usually once or twice a year. This process can take a complete day or a few days, depending on your inventory size. Some large companies even halt their supply chain operations to perform physical count.
A physical count requires extensive resources and manpower to complete the counting. That’s why it isn’t conducted frequently. Mostly, a physical count is done every once or twice a year. This means that if there is an error in your inventory, it won’t be noticed for months.
On the other hand, a cycle count is faster, frequent, and requires fewer resources. For example, a team can count a specific range of inventory every week without disrupting any operations. This regular inventory counting approach provides a quicker way to regularly count the entire inventory and identify errors.
There are many advantages of cycle count compared to physical count, such as:
- Save time
- Early detection of inventory errors
- Enhanced inventory accuracy
- Require limited resources
- No need to halt the complete supply chain
Overall, physical count seems to be effective only if you have a small inventory. For large inventories with hundreds of thousands of products, cycle count seems a more effective inventory management method.
Methods of Cycle Counting
Although cycle counting looks like a simple counting process, it is executable in different ways. Below, we have shortlisted the four common methods of cycle counting:
1. ABC Counting
ABC counting is a popular method to perform cycle counting. It is used in warehouses that have multiple products with different values.
In this method, you have to group products into three categories, i.e., A category for highest-value goods, B category for mid-tier products, and C category for lowest-value goods. Afterward, you have to schedule the structure count that prioritizes the A category. For example, you can have a cycle count for the A category twice a month, the B category once a month, and the C category once a quarter.
2. Usage-based Counting
Usage-based counting is somewhat similar to ABC counting. Here, you have to prioritize cycle counting for frequently purchased and used products. This not only ensures accurate inventory management but also reduces supply chain errors due to the frequent loading and unloading of those products.
3. Hybrid Counting
Hybrid counting is a method that combines ABC and usage-based counting. In this method, you have to prioritize cycle counting for the highest value and most active items. You will create more categories to distinguish products and then prioritize them accordingly. This method is useful when you have a large inventory with a combination of highest-value and most active items.
4. Opportunity-based Counting
The opportunity-based counting method triggers the cycle counting process at specific stages. You will have to begin cycle counting when a specific trigger occurs. For example, you can set a low stock alert as your cycle count trigger. So, when the inventory level hits the low stock threshold, you can conduct a cycle count.
How to Do Cycle Counting?
Cycle counting is not rocket science. You just need to spare some time and use the right methods and tools to get it done. Before we discuss the steps, you should fulfill the below three prerequisites:
- Specify the SKUs Count: Determine the number of products you will count in each turn.
- Manpower: Determine how many team members will participate in counting.
- Frequency: Determine how many and how often you want to count SKUs each year.
Once you know these values, you are in a better position to plan and execute inventory cycle counting. Follow the below steps to do cycle counting:
Step 1. Audit Existing Records
Verify and correct any errors in current inventory transaction records to establish a reliable baseline for comparison during counts.
Step 2. Generate a Count Report
Prepare a cycle count report summarizing system-recorded stock levels. You can use an inventory management system to streamline this process, but a manual template can also work.
Step 3. Execute the Physical Count
Let the team begin the physical count. Check each item’s location, description, and quantity against the report to verify alignment between system data and actual stock.
Step 4. Identify and Investigate Variances
Compare counted inventory with system records and then analyze discrepancies to determine their root causes.
Step 5. Update Inventory Records
Adjust system data to reflect actual stock levels.
Step 5. Update Inventory Records
Evaluate the counting method’s effectiveness. Implement improvements and schedule the next count to ensure long-term accuracy.
Bonus Tip: How to Perform Stock Counts by Location with C2W Inventory
Inventory cycle count looks a straightforward process, but what if your inventory is distributed across your different warehouse locations. In that case, you need an effective system to access the system inventory count and compare it with physical count. That’s where C2W Inventory steps in.
C2W Inventory is a powerful cloud-based inventory management software. It provides an all-in-one platform to manage inventory, purchases, sales, and warehouses. You get a unified, easy-to-navigate dashboard to monitor entire supply chain operations.
The main highlight of C2W Inventory is its intuitive way to perform stock counts by location. It allows you to select the system inventory count of a specific warehouse location and compare it with your physical count. The system will automatically compare physical counts with system records and flag any variances. Afterward, you can adjust any discrepancies directly in the system to sync records.
That’s how C2W Inventory makes it simple and quick to perform inventory cycle counting of any warehouse location from a unified platform.
Other than cycle counting, C2W Inventory also supports full physical counts. It enables you to count inventory across all warehouse locations in one go. Simply put, you can use C2W Inventory as a unified platform to perform both cycle count and physical count depending on your requirements.
Check out this video to learn the detailed steps to use C2W Inventory for performing stock counts by location.
Bonus Tip: How to Perform Stock Counts by Location with C2W Inventory
Inventory counting is essential to maintain an accurate item count, lower overhead costs, and reduce required safety stock. Out of all the ways to count inventory, cycle counting is emerging as a popular inventory auditing strategy for companies across industries.
Some of the key benefits companies get with inventory cycle count include:
- Accurate inventory assessment
- More frequent counting
- Timely detection of errors
- Reduced chances of stockouts or overstocking
- Lower audit fees
- Fewer employees burn out and overtime hassle
- Better customer service experience
- Higher order fulfillment rates
- Facilitation in the closing process
In short, inventory cycle count is a modernized solution to inventory management, serving as an ideal alternative to physical count for large inventories.
Challenges of Inventory Cycle Count
The benefits of inventory cycle count do not come without challenges. It also has its unique set of challenges that teams must tackle. Some of the key ones include:
- Accuracy Gaps: Human error during counts or data entry can impact inventory accuracy.
- Staff Pushback: Employees may view cycle counting as burdensome and show reluctance to participate.
- Process Bottlenecks: Undefined counting workflows or insufficient training can lead to slow counting.
- Inconsistent Counting Policies: Lack of consistent cycle counting policies across the organization can lead to varying accuracy.
- System Compatibility Hurdles: Lack of proper integration between counting tools and inventory software risks fragmented or outdated records.
- Fluctuating Demand Patterns: Rapid inventory turnover between counts can misalign stock levels with real-time needs.
- Resource Constraints: Scaling counts for large inventories demands significant staffing and tech.
- Analytical Oversights: Neglecting to utilize count insights hinders root-cause fixes and accuracy optimization.
- Strategy-Requirement Mismatch: A one-size-fits-all approach may overlook unique inventory dynamics and compromise results.
Overall, the challenges of inventory cycle count can have their impact on accuracy and operational efficiency, but they are avoidable by strategic approach and staff training.
Best Practices for Cycle Counting
A well-executed cycle counting provides an accurate view of inventory, streamlines reordering, and improves the organization of the stockroom. Below are a few best practices to optimize cycle counting:
Categorize Inventory
Divide the inventory into various categories based on product type, inventory value, or other factors. Once divided, plan an accurate counting frequency for each category based on the importance of underlined products. For example, categories that include products with higher sales may need more frequent cycle counts.
Set a Cycle Counting Schedule
Create a proper cycle counting schedule and stick to it. This will ensure that regular cycle counts are made, which lowers the chances of errors or inventory mismatches.
Train the Staff
Cycle counting is only effective if your team knows its importance and how to do it. So, train the team with all ins and outs of cycle counting to ensure consistency and accuracy.
Double-Check Counts
Make a habit of occasionally double-checking the counts to validate your accuracy. Although it will take extra time, it will help identify errors, which can otherwise cause trouble later on.
Prioritize Counting High Value Products
As mentioned above, prioritize counting high-value and high-demand products. These include products that are generating the most revenue or getting the most sales. Regular cycle counting of these products will reduce the chances of stockouts or inventory mismatches and drive sales.
Wrapping Up
Inventory cycle counting is a modern and smart way of inventory auditing without disrupting operations. A well-planned cycle count can provide accurate counts, lower inventory errors, and prevent costly stock discrepancies. Therefore, enhance your inventory accuracy by executing cycle counting with C2W Inventory and boost your supply chain performance.
