Cycle Counting is an inventory management concept that focuses on auditing a warehouse’s inventory.
Cycle counting Objectives
The objective of a cycle count is to track and document inventory levels. While most warehouses will carry out a cycle count at least once a year, it is recommended to complete one more often. This process and its associated procedures ensure warehouse and production teams are working with accurate inventory data. Performing accurate cycle counts often will help maintain the accuracy of your data and the efficiency of your inventory management.
Cycle Counting Versus Full Physical Inventory
Cycle counting is a manual process and can be carried out at any time on specific groups of items and helps refine procedures for tracking and inventory management. The process is designed to be carried out without interrupting a facility’s operation.
Cycle counting benefits include:
- Provides high levels of inventory accuracy
- More accurate financial reporting
- Considered less disruptive to operations when compared to a full physical inventory
- Can focus on subsets of inventory and items based on specific criteria
- A reduction in errors associated with bad data
- Higher levels of customer satisfaction
- Fewer inventory write-offs
- Reduced losses due to inventory shrinkage
Cycle counting disadvantages:
- Highly dependent on buy-in from company leadership down to warehouse staff
- The process needs to be carried out at regular intervals
A full physical inventory is a complete physical count of a business’ entire inventory, most often carried out on an annual basis. The process is generally manual, time-intensive, and requires shipping and receiving operations to be shut down for the duration of the process. As a result, the full physical inventory process can be disruptive.
To minimize the disruption, businesses often attempt to schedule these procedures during a slow period, when inventory levels are low.
Full physical inventory benefits include:
- Improved inventory accuracy
- More accurate accounting records
- Tax burden relief attributed to the record of losses
- Control over inventory shrinkage
Full physical inventory disadvantages:
- Shipping and receiving operations are ceased during the process
- Inconvenient for customers and supply chain partners
- An expensive, non-revenue-generating activity
- A high tendency for human error, resulting in bad data
Many companies complete annual physical inventories as a way of controlling their understanding of what’s in stock at any given time. However, performing a once a year activity to give that visibility leaves gaps.
For this reason, cycle counting is a preferred method of inventory management for businesses of every size. It is not uncommon for businesses to employ both a full physical inventory annually alongside incremental cycle counting throughout the year.
How To Complete A Cycle Count
Cycle counting garners appeal by offering an ongoing and easily achieved approach to inventory management. It is in maintaining the discipline of cycle counting that many organizations find issues.
It should be noted that every organization is different and a cycle count will be adjusted to fit each business’ method of operation. If your organization is interested in implementing a cycle counting program, it would be a good idea to consult a warehouse and inventory management professional. This way, you can avoid costly mistakes associated with trial and error.
Cycle counting involves a physical count of some sub-section of inventory located in a warehouse or other storage facility. It is recommended to complete a cycle count at least once a quarter.
These small cycle counts reveal discrepancies in data that can be logged and rectified within enterprise systems for accurate inventory management.
Here’s a general outline for what’s involved in a cycle count:
- Update your inventory records before carrying out a cycle count. You need a baseline from which to work.
- Determine the scope of your count. For example, a small cycle count will cover X amount of SKUs, while a larger count will cover XXX amount of SKUs. You could also choose to count items over a designated time period, such as the fiscal year.
- Decide which inventory to count first and item subsets to follow. Most businesses generally count their “A”-list products first. That is, the 20% of your inventory that makes up 80% of your inventory value.
- Determine the tools and equipment required to perform the cycle count. For example, if your inventory is barcoded, do you have handheld scanners available? If goods can’t be physically counted or handled, do you have a scale to weigh them?
- Decide who will perform the cycle count.
- Carry out the cycle count based on the details outlined in preparation.
- Review discrepancies between the cycle count results and warehouse records.
- Make the appropriate adjustments for incorrect data based on your baseline inventory record.
Cycle Counting Workshops
Encompass Solutions can train your staff to carry out Cycle Counts that Count through an educational workshop series led by our experienced inventory and warehouse management consultants.
Learn more about our Cycle Counting workshops HERE or contact us using the link below to speak with a representative.
About Encompass Solutions
Encompass Solutions is a business and software consulting firm that specializes in ERP systems, EDI, and Managed Services support for Manufacturers and Distributors. Serving small and medium-sized businesses since 2001, Encompass modernizes operations and automates processes for hundreds of customers across the globe. Whether undertaking full-scale implementation, integration, and renovation of existing systems, Encompass provides a specialized approach to every client’s needs. By identifying customer requirements and addressing them with the right solutions, we ensure our clients are equipped to match the pace of Industry.