11 Inventory Cycle Counting Best Practices and Tips

11 Inventory Cycle Counting Best Practices and Tips

What is a cycle count

 

Maintaining accurate inventory figures is a crucial objective for many organizations. The fall out of inaccurate stock can be more than just losing one sale or customer; it can lead to a bad reputation for your business, too. Given that reviews play a significant part in customer decision making, getting it right is essential. 

To rectify inventory issues before they become problems, managers implement inventory counting methods that will pinpoint errors. One of the most popular inventory counting methods is cycle counting. Unlike physical counts, inventory cycle counting is an ongoing process expressed in short bursts.

In this article, we discuss what cycle counting is and walk through 11 tips that could help your cycle count accuracy. Let’s take a closer look. 

 

What is Cycle Counting? 

Two inventory counting methods that help to maintain accurate inventory figures are physical counts of inventory and cycle counts. Both aim to achieve the same outcome – accurate inventory figures. However, the time and effort required to conduct each method differs significantly as does the use case for both methods. 

A physical count requires every single item in a company’s inventory to be counted. Although this may provide an accurate snapshot of what’s in stock and where it’s located, it’s not always a viable option. 

That’s because production usually needs to stop while the count takes place to get an accurate figure. Also, physical counts do not identify where problems may be occurring.    

The alternative is conducting regular cycle counts. This method is very similar to physical counts, but differs in approach. 

Instead of counting the entirety of your inventory, employees tackle small portions of inventory according to a schedule.

Cycle counts require less downtime and help to identify minor problems and inaccuracies before they become a major issue. Because cycle counts are conducted regularly, you can spend less time doing physical counts and track inventory more accurately. This leads to greater productivity and a vastly improved stock management/re-ordering process.

 

Why are Cycle Counts Important? 

Whether you’re doing physical counts of inventory or a cycle count, knowing what you have in stock is critical. Regardless of business size, customers expect you to have items in stock when they need it, and in a location most convenient for them, be it online or in-store. 

Cycle counts are, therefore, an essential step in maintaining optimum inventory levels across all of your sales channels. This is true for manufacturers and retailers. 

 

  • For manufacturers, running out of raw materials will cause a halt in production, potentially costing thousands of dollars in wasted labor and missed delivery deadlines. 
  • For retailers, not having products in stock means losing sales on the day and potentially losing customers to a competitor who has the item in stock.

 

In a competitive ecommerce landscape, running a tight inventory management operation is equally as important as marketing and sales. 

 

Common Causes of Inventory Discrepancy

Several factors cause discrepancies in inventory figures. Where cycle counts help identify causes of inaccurate stock numbers, physical counts tend to do the opposite.

Because physical counts take place once or twice a year, you cannot pinpoint when a mistake occurred. Cycle counts help catch errors as they happen and identify the cause as they are an ongoing practice. 

Regardless of inventory counting method, mistakes do happen. These are five of the most common causes of inventory discrepancies. 

 

1. Human counting errors

Sometimes, you can’t get away from the fact that human errors occur during a count. Errors can be caused by the same SKU stored in multiple locations, similar items being counted as one product, and simply miscounting items on the shelf.

 

2. Returns

A flawed returns process quickly leads to inaccurate stock figures. If you don’t know when and how returned items are put back into stock, they can be lost, thrown away, or added back into stock without being accounted for. 

 

3. Breakages

Most businesses have a tolerance for defective and broken products, but not all companies have a process for logging and updating stock when breakages occur. 

 

4. Inaccurate deliveries

 Supplier deliveries can be a significant cause of stock issues if they are not checked and booked into the system accurately. You should check every delivery against a purchase order and the only items that should be added to stock are the ones that have been successfully delivered.

 

5. Pick and Pack Errors

Sending duplicate items, missing items off an order, and sending the wrong product are all simple, but avoidable causes of inaccurate inventory figures.  

 

11 Inventory Cycle Counting Tips 

Now that we know what an inventory cycle count is and why it’s important, it’s time to share our 11 top tips and best practices. Following these will ensure your inventory cycle counts are successful, efficient and accurate. 

When doing your cycle counts, it’s essential to do what works for your business as we all have different processes, warehouses, and products to manage. 


1. Do One Cycle Count Per Year

The frequency of your cycle counts will come down to how many SKUs you hold, how many warehouse locations you have, and your inventory turnover rate. For companies with a high inventory turnover rate, regular counts will be crucial to maintaining a consistent flow of inventory coming in and orders going out.

As a baseline, we recommend conducting a cycle count every 12-13 weeks, roughly every quarter. This will help to catch problems before they develop into more significant issues. The minimum number of counts you should do is one per year, but only if you have a small amount of inventory to manage.     

 

2. More Cycle Counts, Less Physical Counts 

We’ve already explained the impact that physical inventory counts can have on a business, particularly manufacturers. The less time spent counting and stopping production lines, the better. Cycle counts are a great way to prevent your operation being put on standby. 

Introducing regular cycle counts into your inventory management process will reduce the number of physical counts you need to do at the end of the year, saving significant amounts of time and money.  

 

3. Cycle Count in a Pattern

Because cycle counts are an ongoing process, it’s essential to have a plan in place before the count begins. Best practice is to plan a logical route through your warehouse and divide it into manageable counting sections. This will ensure that you can pick up where you left off last time and reduce the chance of double counts. 

Additionally, be aware of any changes to stock locations and new product lines. If a new product has been added to the warehouse in a section you have already counted, it could be some time before you get round to counting it again. This speaks to the importance of logging new deliveries accurately to reduce inventory issues. 

 

4. Maintain an Accurate Inventory Count 

The whole point of having inventory counting methods in place is to maintain accurate inventory figures! We’ve seen what some of the common causes of inventory issues are, so working to avoid these by conducting regular cycle counts is vital.

The cost of poor inventory management is increased customer service costs and alienated customers. Higher return rates will also impact your bottom line, as well as having to resend the correct items, and maybe even comping customers with vouchers, free products and discounts.   

 

5. Have a Plan

Having a plan for counting inventory is different to planning your route and having a cycle count pattern. Integrating regular inventory checks into existing processes will ensure that it doesn’t become a chore and forgotten about in six months.

If you regularly experience inventory issues, or your business is expanding the inventory you carry, it might be best to assign one employee sole responsibility for your cycle counts. Although it may be faster to have multiple people conducting counts, in some cases, it can lead to more errors and cause more issues than it solves.  

 

6. Organize Your Inventory 

Having a tidy and well-organized warehouse certainly helps to maintain accurate inventory figures. The same products must be kept in one location in the warehouse so they can be counted correctly. Ensuring returns are added back into the correct location, and aren’t left elsewhere is also crucial. 

Organizing your inventory is especially important for products with minor variations and different SKUs. For example, if you have two pairs of shoes with the same design but different color laces, these should be marked and separated on the shelf, so they’re not counted as one product. It’s small errors like this that cause big problems and unhappy customers.   

 

7. Budget for Growth 

Defining and refining your cycle count process is an investment, and one that will pay off as your business grows. Putting a solid plan in place now will ensure that when you’re in growth mode, you are confident you have everything you need to offer an efficient and exceptional retail experience. 

It may also pay forward to review your existing warehouse and storage capabilities. If you plan to expand your warehouse locations, this should be built into your cycle count plan so that the transition is smooth and without errors that could cause downtime and order issues.

 

8. Delegate and Be Aware 

If you don’t have the resources to put one employee in charge of your cycle counts, you must be prepared to delegate tasks appropriately. Try and assign employees to different areas and categories to count each time. Doing so will reduce potential theft, where employees deliberately input the wrong figures, and other problems that cause stock to be miscounted or inaccurately logged.

Posting the cycle count in a high traffic area will hold assigned employees accountable for upholding the schedule. You could also post results of inaccuracies and targets for different teams and employees to work towards. 

 

9. Plan Counts in Line with Seasonal Demand

If you have products that are particularly popular during different seasons, aim to count these categories and products during peak periods. Busy periods are the most common time inaccuracies occur, so finding problems early ensures you can rectify them quickly. 

Another tip for seasonal items is to organize them appropriately in your warehouse. Keeping all of your spring, summer, fall and winter items together makes it quicker and easier to conduct a count, rather than zig-zagging across the warehouse and potentially missing important items. 

 

10. Embrace Technology and Automation 

There’s plenty of tech out there to help increase the accuracy of your counts and inventory figures. For example, a barcode scanner will tell employees where products are located and will only allow the correct product to be scanned and updated in the system. 

It would be best if you also used inventory management software, like SkuVault. Keeping an electronic record of inventory will not only ensure greater accuracy, it will allow you to run reports to and automate parts of the inventory management process such as raising purchase orders and identifying low stock thresholds.   

 

11. Don’t Completely Eliminate Physical Inventory Counts 

As effective and productive as cycle counts are, they don’t eliminate the need for regular physical counts. In the first instance, conducting a physical inventory count will ensure you have an accurate starting point for your cycle counts moving forward. 

Most companies will conduct a physical count once per year, usually at year-end to help with accounting for raw materials and finished products. The benefit of doing cycle counts every quarter is that annual physical counts will take less time and are more likely to be accurate.  

 

Final Thoughts on Inventory Cycle Counts 

Given that stock is the lifeblood of all retail, ensuring your inventory is accurate and up-to-date is a must. The cycle count method is a fantastic way to regularly audit your inventory and identify minor issues before they become major problems. 

That being said, your inventory must be correct in the first place. That’s why we recommend carrying out quarterly cycle counts and annual physical counts. Doing so provides a kind of reset and ensures that inventory issues don’t become a long term problem, which is much harder to resolve.  

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