This article provides an overview of inventory cycle counting best practices highlighting the process, methods, steps, frequency, and benefits.
What is Inventory Cycle Counting?
It is the process whereby physical inventory counts are confirmed against inventory records. Experts describe regular cycle counting as an essential process for managing inventory counts.
This inventory management option with which items are counted in a designated area without halting operations for a full physical count.
Inventory Accuracy in Cycle Counting
This metric can be a count or cost. The inventory cycle count accuracy formula is used for determining the inventory record accuracy.
The formula for count accuracy is as follows:
IRA = Matched inventory / # items counted
For dollar/unit, the formula is: IRA = [ 1-the sum of the absolute variance / # the sum of the total inventory ] x 100
With the formula, the accuracy level is obtained and compared to available data.
Cycle Counting or Physical Counting?
Physical counting applies to all items in a building. The items are counted at designated items. Inventory counting only focuses on preselected areas and can be done frequently, even daily.
Compared to physical counting, cycle counting saves time, ensures product reliability, and improves inventory accuracy.
Performing Cycle Counting
Cycle counting is carried out by scheduling the counts of specific areas frequently. Workers can be assigned to different areas.
To develop a cycle counting program, incorporate essential inputs such as:
- Number of SKUs
- Counting frequency
- Counting resources
The number of SKUs, as well as high-value products, determines what will be counted. The items that are reasonable to count also influence what is counted.
High-value products and the number of SKUs to be counted per cycle count influence the counting frequency too.
Consider available resources in terms of the number of employees as well as available time.
The Policy of Inventory Cycle Counting
The inventory cycle counting policy determines the frequency as well as the pattern of performing inventory counts. It states whether counts will be done randomly or in set patterns.
Steps for Inventory Cycle Counting
- Review existing records and collect data where necessary
- Generate a cycle count report: Print or upload the report as appropriate
- Start the count
- Identify and reconcile any differences
- Implement necessary counting procedures and policies
- Change inventory record database to reflect findings
- Calculate and change inventory record accuracy
Cycle Counting Methods
Here are some of the methods of inventory cycle counting
- Cycle counting by usage: Counts the most used items
- Opportunity-based: When the opportunity arises, such as when ordering or receiving the items
- Surface area: Allocate specific counting spaces
- Control group: Only a small group of items is regularly counted
- Hybrid: A combination of different methods
Benefits of Inventory Cycle Counting
Some of the benefits of inventory cycle counting are highlighted below:
- Increased sales
- Enhanced quality of customer service
- Improved order fulfillment rates
- Reduced errors
- Elimination of employee overtime costs
- Better efficiency in production processes
Challenges and Risks of Inventory Cycle Counting
The risks of errors still apply to inventory cycle counting. As such, it is important to calculate inventory accuracy and combine findings.
Using a methodological method improves accuracy. Also, the timing should be suited to the activity.
Best Practices for Inventory Cycle Counting
Here are some of the best practices for achieving proper inventory cycle counting
- Calculate accuracy with the formula
- Close transactions related to inventory items before counting
- Use standard methods to group items
- Assign personnel to specific teams
- Investigate errors extensively
Cycle Counting Automation
Automated processes can take over the manual cycle counting process. Inventory software can replace manual systems and spreadsheets.
Devices can be used to store data while software solutions are used for implementing systems and counting items.
Inventory cycle counting is an essential audit process for all organizations. This overview covered the essential details you need to know about inventory cycle counting.