What is Inventory Cycle Counting?: A 2023 Guide

Cycle counting hardware is little help without the right software. The modern warehouse needs powerful tools to fight labor shortages and inefficiencies. Failure to adopt cycle counting technology can hurt your productivity and revenue.

Therefore, you’ll want to ensure they are under control and avoid unnecessary ordering. Verifying on-hand inventory allows you to recalibrate, providing you with the accurate information you need to inform your purchasing decisions. Ensuring you buy the right items, at the right time, in the right quantities, and at the best possible price safeguards your profitably, production rates, and patient service levels. Use the formula given above to calculate your inventory accuracy levels. If it’s coming up below 90% most of the time, you’ll want to implement strategies to improve accuracy. Only Shopify POS helps you manage warehouse and retail store inventory from the same back office.

• However, this method does pose risk for over-counting certain prioritized areas which can lead to inaccuracy of the sample.
• Each count plan represents a portion of inventory, which needs counting on a regular basis (daily, weekly, monthly, quarterly, yearly, etc.).
• Cycle counting can be made hassle-free if you have a well-structured warehouse and an organized inventory management system.
• Adjust the inventory record database to remove the error found by the cycle counter.

Such a cumulative productivity gain is also a money-saver compared to paper printouts, spreadsheets, or obsolete barcode software. On-demand mobile barcode printers and RFID solutions enable one employee to do the work of two. Cycle counting reduces the risk of human error by performing more consistent daily counts that automatically update every time an item is scanned. This eliminates staff having to physically rope off areas that might get tampered with after manually counting. Cycle counting is the process of regularly counting a small portion of inventory.

The A-grade items are counted most often, as they are fewer and they are of the greatest value to the company. B and C-graded items are counted less frequently, on a sliding scale. A company wishing to count all of its products over a set period can divide the number of SKUs by the number of counts to establish how many should be counted each time. A retailer picks a small, set number of SKUs (stock keeping units) out of many thousands for each count. It could count a different set of SKUs each cycle – whether that be daily, weekly or monthly – or the same ones each time.

The goal is to maintain accurate inventory records while optimizing operational efficiency and cost-effectiveness. Better inventory control is one of the easiest ways to improve revenue, but many companies focus their attention elsewhere. Conducting complete physical inventories can be a daunting undertaking, requiring time, staffing, and closing down your warehouse.

The Biggest Disadvantage to Cycle Counting

The most commonly used items are counted more often than those used less often. Cycle counting can also serve as a deterrent to inventory fraud and theft. When employees are aware that inventory levels are continuously monitored, the risk of unauthorized stock manipulation diminishes. After reading this post, we hope you’ll better understand inventory counting and how it can help you keep track of your inventory more effectively.

• More accurate inventory data can help prevent you from over- or under-buying stock.
• Though, companies cannot completely nullify all inventory errors but can improve the error eradication rate significantly with the cycle counting process.
• A study from ECR Retail Loss found that inventory record inaccuracy (IRI) has a substantial impact on sales, with revenue lost because products are out of stock or otherwise unavailable.
• Inventory management software takes care of all variables of cycle count, such as the scope of the count, count frequency, item location, item categorization, etc.

Essentially the strategy is that you would have a calendar day to count different types and sections of your inventory. By doing this, you create a cycle of counting that is continually moving from one item or section standard cost variance analysis- how it’s done and why in your warehouse to the next until you arrive by to where you started. Certain ERP software systems like Oracle JD Edwards and Microsoft D365 have inventory tag counting baked-in to default functionality.

Physical Count vs. Cycle Count

By combining both physical and cycle counts, businesses can ensure the accuracy of their inventory data while also minimizing disruption to their operations. Various methods of cycle counting include using barcode inventory systems, RFID inventory management or manual counting. The frequency of cycle counting can also vary depending on the nature of the inventory, the turnover rate and the company’s size. Lastly, CryoLife’s cycle counting success story shows how automation and offline mobility can work in the field.

Why is Inventory Cycle Counting so Important?

Creating a control group uncovers errors in your counting technique, so you can fix them before counting larger groups of products. This approach gives them up-to-date information about their inventory levels throughout the year while still ensuring accuracy at key points in time. If you don’t understand your inventory systems or the amount of inventory you have, you’re likely to experience downtime.

How to improve inventory cycle counting

Before you fully adopt cycle counting, identify which strategy works best for your inventory based on the characteristics of the items you stock. If  the inventory records are not first updated with all outstanding inventory transactions, it is possible that a cycle counter will detect an error and adjust it. If the actual transaction is then entered on top of the cycle counter’s adjustment, the result may well be a more inaccurate inventory record than had originally been the case. This problem is particularly common when the same inventory item is stored in multiple locations, so there may be confusion about which location record to adjust for an inventory transaction. Finally, Dynamic Counting adjusts the cycle counting schedule dynamically based on changes in inventory characteristics.

If the latter method is used, it may also be necessary to recount certain items more frequently, if they are critical to the production process. For example, cycle counting could mean counting one-twelfth of the inventory items each month. Therefore, each month one-twelfth of the inventory records would be adjusted so that they agree to the physical counts. In your warehouse, some inventory may become damaged, lost or stolen. Your inventory tracking system will probably count these items as in-stock, even though you cannot sell them. Besides updating your system to reflect missing inventory, cycle counting gives you a chance to inspect and remove any merchandise unfit to sell.

Routine counts lead to more accurate numbers and the ability to quickly identify theft or other issues causing discrepancies in your inventory. More accurate inventory data can help prevent you from over- or under-buying stock. The advantage is fewer disruptions to your warehouse or retail store, as random cycle counts can happen during normal business hours. The ABC cycle counting method uses the Pareto principle, also known as the 80/20 rule—80% of your results come from counting 20% of your products. Cycle counting doesn’t capture all inventory discrepancies, particularly if the counting schedules aren’t frequent enough or if the process isn’t executed accurately. Incomplete or inaccurate counts can lead to missed discrepancies and potential stockouts, which can negatively impact customer satisfaction and lead to lost sales.