What are cycle counts?
Cycle counting is a method used by warehouse operators to ensure they have an accurate picture of the amount of different products in their inventory storage at any one time.
An alternative to a traditional physical inventory count in which every single item in an inventory is methodically checked and counted, cycle counting uses sampling techniques similar to those used by pollsters which are then extrapolated to form a picture of the overall inventory situation for the business.
The importance of inventory counting
When it comes to warehouse storage, accurate inventory data is everything. Without it, operators may either over-order on inventory or find themselves without enough stock to uphold their commitments to customers.
Traditionally, warehouses have relied on physical counts of inventory, carried out periodically as a check against records of goods received and items dispatched. However, these physical counts can be time-consuming, labor intensive and disruptive, often requiring the pausing of normal business operations such as shipping and receiving during the counting process.
Annual or biannual physical inventory counts are still a requirement under some accounting and tax rules but, where they have the choice to do so, warehouse operators are increasingly moving to cycle counting as a more flexible and agile approach to maintaining accurate inventory data.
Physical vs cycle counting
In conventional physical inventory counting, an organization sets aside several days to count every item in its inventory across all its warehouses, offices, stores and other locations, with the aim of ensuring what is physically on its shelves tallies with what its inventory management system says should be in stock.
Physical inventory counts are usually performed annually, often as a way to start a new financial year with accurate information on which to base business decisions.
Many businesses with a relatively small inventory find physical inventory counting works for them, with the time and effort required being manageable for the benefit of knowing exactly what products they have in stock at any one time.
However, businesses with a large number of pick faces may find physical counting difficult. For these organizations, the flexibility and minimal disruption offered by cycle counting makes it the ideal solution for them.
Cycle counting involves counting a much smaller amount of stock than in physical counting, but on a more frequent – often daily – basis. Small samples of inventory are counted continuously, with the entire inventory counted over a set period of time.
For example, if a company stocks 1,500 different SKUs in storage bins that must be counted every six weeks, its team will count the items associated with four or five SKUs per day. This may be carried out by dedicated employees who take responsibility for cycle counting, or form part of all employees’ broader day-to-day responsibilities.
Cycle counts explained
There are many cycle counting methods which prioritise different items over others for counting. These include:
- Prioritization by sales ranking – also known as ABC analysis, 80/20 or the Pareto Principle method, this involves grouping items into categories A, B or C based on their value, with those in A and B counted more frequently
- Prioritization by use – this method focuses on frequently used inventory items that – if not held in stock – would create major business or manufacturing disruption
- Prioritization by physical location – such as by department, storage bins, or floor area
Businesses may also choose to undertake random selection of samples for counting, or develop their own hybrid methods to support their specific priorities.
What is important is that counting is carried out in a disciplined manner, i.e. to a defined schedule, with counters following consistent processes, count accuracy checked on a regular basis, and everything ultimately being counted when it needs to be counted.
Cycle counts: The benefits
For many warehouse operators, cycle counting offers significant advantages that make it the preferred method for ensuring accurate inventory data over physical inventory counts.
- Less disruption – Due to the fact only a small percentage of inventory is being counted at any given time, cycle counting causes minimal disruption to business processes and can usually be carried out during the normal course of the business day.
- Less concentrated dedication of time and resource – Requiring a smaller amount of continued effort throughout the year rather than one single, all-encompassing count at year-end, cycle counting enables businesses to spread the time and resource required across the calendar year, making it more manageable.
- Fast identification of issues – The continuous nature of cycle counting means it can quickly uncover problems that might otherwise remain unnoticed until the next full physical inventory count, leading to bigger issues.
- Potential for continuous improvement – Where issues and discrepancies such as loss, spoilage or theft are identified, businesses can act quickly to resolve the causes of those problems and therefore effect continuous process improvement.
Both physical counting and cycle counting are effective methods of inventory counting that can improve warehouse inventory management.
Physical counting is typically a large-scale, annual effort that causes significant disruption to normal business operations, albeit for a limited time. However, it can be helpful for businesses to start a new financial year with the certainty about their inventory that it offers.
The continuous nature of cycle counting makes it a more flexible option that causes less disruption to business activity and can provide timely updates on current stock of key SKUs, allowing businesses to plan their orders and expenditure more efficiently. However, its efficacy relies on it being carried out to a set schedule; it cannot be paused for a lengthy period of time or outsourced at year-end.
The ideal solution for some businesses is to marry the two options, cycle counting stock all year round and performing a complete physical inventory once a year.
However your business chooses to manage and count its inventory, our flexible warehouse storage systems can help make the process an easier, more efficient one. Find out how PALLITE® PIX® and PALLITE® PIX® SLOTS is helping warehouse managers practice effective inventory management in this blog on the topic, or by giving our friendly team a call.