Inventory Cycle Counting: What it Means and the Best Practices

Companies can incur significant losses in revenue and sales from inaccurate inventory counts. Losses from inaccurate inventory counts apply to all kinds of businesses, from small businesses to large establishments.

Let’s go through how to achieve accurate inventory counts in this article.

Importance of Inventory Counts

Inaccurate inventory counts can cause issues across every aspect of a business, from customer service to sales forecasting and general logistics. As such, every business aims to achieve accurate inventory counts.

Reports have shown that about 30% of businesses have sold out-of-stock items and many retail businesses have only about 60% accurate inventory count. Also, fixing basic inventory issues can lower inventory costs by up to 10%.

Physical Count or Inventory Cycle Count?

Physical count is the process of physically counting products and comparing them with the numbers on an inventory spreadsheet or software. This method of inventory counting is always a huge undertaking, even for small businesses.

The human resources and time required for physical counts make them unfeasible. Errors are also commonly associated with physical counts.

Inventory cycle count is a better alternative to physical counts. This type of count replaces the full counting of products with sampling. Instead of counting all products, representative products are counted.

The results from the chunks of the products are then extrapolated to the whole. Carrying out inventory cycle counts involves sectioning the products. Assign people to count the sections as representative of the whole.

With inventory cycle counts, more frequent counts can be carried out with results arguably more accurate than those of physical counts.

Types of Cycle Counting

Three types of inventory cycle counting are commonly practiced. The inventory cycle counting methods are control group cycle counting, random sample cycle counting, and ABC cycle counting.

Control group cycle counting: This method involves the creation of a control group, counting the products in the group, and extrapolating the results to larger data sets. Companies looking to finetune their inventory counting can apply this method and improve the process over time.

ABC cycle counting: The Pareto Principle is applied in ABC cycle counting. The 80:20 rule is used to categorize items into groups A, B, and C known as high-value, mid-value, and low-value items, respectively.

Group A items are typically the fewest, and group C items are the most numerous. As such, group A items are counted more often than groups B and C items.

Random sample cycle counting: With this method, random items are counted during each cycle count. The method is best for businesses with similar items. Issues could arise with this method when most group A items and minimal group C items are counted.

The technique for this method can be constant population counting where the same items are counted during every cycle. Another technique is the diminished population counting where the items counted in every cycle are excluded from further counts until all items are counted.

Cycle Inventory Count Best Practices

Identifying and applying cycle inventory best practices improves the system and optimizes the process. Here are the cycle inventory best practices:

  • Make inventory counts part of routine facility operations
  • Do inventory counts regularly, could be daily
  • Plan product counts
  • Apply ABC cycle counts to focus on high-value products
  • Carry out and compare double counts
  • Track inventory counts
  • Document inventory counts

Physical Inventory Count Best Practices

If you opt for physical counts, here are the best practices to incorporate:

  • Keep inventory counting and recording separate
  • Halt or reduce operations during counts
  • Designate special counting areas
  • Remove defective or obsolete items
  • Carry out mock counts
  • Inform suppliers and partners about the count

To end, let’s address some frequently asked questions about inventory counts.

What is the ideal frequency of inventory counts?

Counts should be carried out as often as possible. Physical counts, full-cycle counts, and strategic counts can be carried out yearly, quarterly, and daily respectively.

Can any staff be involved in inventory counting?

Not exactly. If staff members are not trained on proper procedures, significant errors could occur.

When should inventory count be done?

The best time is before the doors open or after they close. Special areas for new items should be designed if counts are done during operations.

Proper inventory practices can be put into effect to lead to significant changes in businesses, as highlighted in the article.