Inventory Cycle Counts: How they can improve your stock management
What are Cycle Counts?There is often confusion around the difference between a cycle count and stock-take, so first we need to look at what cycle counting really is. Traditional stock-take involves stopping the business for the manual counting of every single inventory item, a huge, time consuming task that is usually completed on a quarterly, semi-annual, or annual basis. A cycle count, on the other hand, is the process of counting a part of your inventory in a continuous cycle, keeping stock data up to date on an ongoing basis. In contrast to an annual stock-take, cycle counts are done on smaller groups of stock on a rotating schedule and far more frequently, ensuring a more accurate and timely record of an organization’s most important asset. Because cycle counts only deal with a portion of the inventory, criteria for these portions can be defined by the organization. If, for example, a certain portion of inventory consists of high-value items, the company may choose to complete a cycle count for this segment more frequently, as well as make adjustments to the acceptable loss criteria. This makes cycle counts an extremely versatile tool for management of stock and for controlling stock losses.
What is the importance of accurate stock?Any stock-take, be it manual or cycle counting, aims to account for the discrepancies between physical stock-on-hand and the stock available for sale or use as recorded in the company’s stock holding software. Obviously, if your actual physical stock and stock available in your sales order system, for example, are vastly different, it will cause major problems in production or sales. If physical stock is not available when it is needed, orders cannot be fulfilled, customers are unhappy, and the bottom line is affected. Conversely, overstocking items because stock available figures are inaccurate is equally as damaging. Extra stock ties up capital, uses warehouse space unnecessarily, is harder to track, and in the case of perishable goods, prone to expiry and wastage. Having accurate stock inventory records means that many, if not all, of these situations can be avoided.
What are the Benefits of Inventory Cycle Counts?The problems with traditional stock-takes are obvious – they are time consuming, disruptive, and prone to errors. Shutting down operations for a period in order to complete a stock-take is impractical and affects trading and costs. Cycle counts address a number of these issues:
- Minimizes DisruptionsThe most obvious benefit of cycle counting is the minimization of disruptions to trading. By continually tracking stock in parallel with a company’s regular operations, annual stock-take can be completed in a much shorter time, if not eliminated completely. This streamlines the process and ensures less “shut down” time. Regular stock counts also have less of an impact on the availability of staff for other operational processes. This means fewer delays in not only operations but also fulfilment processess.
- Reduces over or under stocking and increases stock turnaround Data collected from regular cycle counts can be used to improve stocking and production decisions, reducing the capital that sits in inventory, reducing stock wastage, and avoiding situations where stock is unavailable. This reduces costs and cash flow problems.
- Real-time awareness of stock problems and faster corrections Cycle counts allow organizations to immediately identify where inventory variances are occurring and the cause of these problems. This means that corrective action can be taken immediately and can be monitored and verified.
- Improved Customer Service Directly, customer service is positively affected when stock is accurate and available for sale. Indirectly, accurate stock figures improve production and delivery speed, improving service delivery and customer satisfaction, in turn driving improvements straight to the bottom line.
How Do Cycle Counts Work?How cycle counts are completed is influenced by several things:
- The scope of the counts. How much of the inventory will be counted influences the frequency of the counts and how it will affect production and trading.
- Frequency of cycle counts. Items can be grouped and counted at different intervals. Higher value items or items with fast turnover, for example, might be counted more often for greater accuracy and the ability to identify mismanagement more quickly.
- Labor capacity. Frequency of counts is influenced by the staff available to complete them. In scenarios where cycle counts are required frequently, an organization might consider employing full-time cycle counters.
“Step 1: Control group Cycle Counting. A small group of items are counted a number of times across a very short time period. Over time, this repetitive counting uncovers any errors in the count process. After these errors in the process are correct, the process can be applied across multiple areas to more and more product categories.
Step 2: Random sample method. This approach to Cycle Counting entails the periodic selection of random items. This method is most commonly used in warehouses that contain a large number of similar items, but also will check the process and highlight any odd behaviors.
Step 3: ABC inventory analysis. One of the most commonly used methods is the ABC inventory analysis approach. This strategy ranks stocking items based on the highest to lowest annual sales volume at cost. A lot of preparation is required as every item is assigned a letter, normally A, B, or C. The basic method focuses on higher-value items that move most frequently and will be identified as “A” items, and counted more frequently, while the redundant stock, allocated as “C”, probably counted only once per year.
Hybrid approaches, or map-based Cycle Counts (determined by dividing the stock by the surface area used to store it) are also used.”Ultimately, it is up to each organization to develop a cycle counting strategy based on its own needs and requirements.