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Cycle Counting: Key Advantages & How It Works (Guide)

Cycle Counting: Key Advantages & How It Works (Guide)

For any warehouse, the single most important thing is inventory—goods being brought in and shipped out.

Keeping track of that inventory is critical. If the inventory is miscounted or misrepresented in the numbers, your warehouse can get into trouble. You may have to record losses, and if you don’t know where the inventory went, you might need to consider theft.

By not keeping track of inventory, you’re doing your business a disservice and could keep yourself from growing.

Today we’re talking about cycle counting. The best practices, pros, cons, and how to choose the right inventory strategy for your warehouse.

Let’s dive in with a definition of cycle counting.

What is Cycle Counting?

According to the excellent resources of WhatIs, cycle counting is, “A cycle count is an inventory auditing procedure, which falls under inventory management, where a small subset of inventory, in a specific location, is counted on a specified day.”

Essentially the strategy is that you would have a calendar day to count different types and sections of your inventory. By doing this, you create a cycle of counting that is continually moving from one item or section in your warehouse to the next until you arrive by to where you started.

Cycle counting has been studied extensively which has helped develop it in a way that best suits business needs. There have been scholarly articles written on it including this review by The Department of Industrial Engineering at the University of Arkansas.

It is an effective practice to use in small and medium-sized warehouses. When cycle counting, you’re comparing the numbers you count to the inventory records you keep so that you maintain an operational amount of inventory. This helps you to ensure accurate numbers, avoid over-shipments, and that there is no theft in your warehouse.

Best Practices for Cycle Counting

Now that you know what cycle counting is, why might a warehouse consider using this method? What are the best practices? Maybe you have a good count, and you haven’t noticed any inventory go missing. Why should you choose this method over others?

In our minds, there are a few specific best practices for cycle counting.

Regularly Scheduled Counts

For cycle counting to be done correctly, there has to be a regular schedule. Most experts say that it’s best to schedule to count all of your inventory at least every quarter. This could seem like a lot. So, in order to help make it easier, have all hands on deck, and in some cases, you might be able to knock it out in a day. The benefits of having an accurate count are endless.

Separate Inventory into ABC Groups

After you’ve got it on schedule, the next step is separating the inventory into sections or groups. The goal of this is to make it systematic. If you don’t have the capacity to count all of it within a week or a couple of days, then you can count each section or group as you go.

The idea behind breaking them into ABC groups is that they would be sorted in that order and frequency. A-Items would be counted most frequently, B-items second most frequently, and C-items least frequently. Since you are selling A items much more regularly, in turn, they are more valuable than B or C items. This makes it that much more important to have an accurate count.

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Again, no matter how long it takes, it’s critical that you get an accurate count at least once a quarter.

Investigate the Discrepancies

After you’ve finished counting your inventory, you’ll find one of three things. You have too much inventory for an item, too little, or the correct amount. Inevitably you’re going to have a discrepancy at some point. The easy thing to do is just to amend the record and move on to the next thing.

Unfortunately, that doesn’t solve any problems. Take the time to investigate and find out why things are going missing. By doing this, you’ll be able to get to the root of the issues and create a more efficient warehouse system. Your warehouse will save money and boost profits.

Sort Based on Value

One practice that some companies use is sorting based on value. If you have some more valuable inventory items, you might find this to be helpful. You could plan on counting those items more often for security and reassurance. These types of items can be targets for warehouse theft so it’s crucial to keep accurate numbers on hand.

Advantages to Cycle Counting

Let’s start with the advantages.

  • Achieve increased buying confidence

Buying confidence is a big one. If you know what you have, you can be much more confident when you purchase more inventory of different items. You won’t have to worry about overbuying or under buying. You’ll be able to come up with specific strategies that allow you to make confident decisions.

  • Limit the amount of downtime your warehouse experiences

If you don’t understand your inventory systems or the amount of inventory you have, you’re likely to experience downtime. Without a doubt, this will cost you money. Downtime always costs a lot of money. By staying on top of your inventory, you’ll eliminate downtime and become a more reliable warehouse.

  • Maintain focus and keep inventory as a priority

It’s easy for a lack or abundance of inventory to become distracting for companies. It causes confusion and leaves them scratching their heads, wondering how it happened and how to fix it. If that’s you, then we’re truly sorry for all of the stress that you’ve probably experienced. Consider using a new strategy to help keep inventory as a priority so that you can stay focused on what matters.

The cons aren’t many, but one disadvantage might help you to understand whether or not your company should you inventory cycle counting.

The Biggest Disadvantage to Cycle Counting

The one thing that is going to keep your company from being able to cycle count well is time. It takes many man-hours and a lot of frustrating time to count all of the inventory. What’s more, is that if you want your business to grow, then it is only going to take more and more time.

Cycle counting isn’t scalable for companies that want to grow. If that’s you and you’re trying to take your company to the next level or stage of the game, then you should instead consider inventory management software.

How to Know What’s Right For You

Finding the right solution for your inventory system isn’t always simple, and sometimes you have to try a few different things in order to get it right.

Two factors can determine the best solution for you.

#1. How large is your warehouse?

Exact square footage isn’t the important part here. It’s how many items you have and how you would go about counting them. Are you counting and shipping by hand, or do you have barcodes and tools? Do you have large items that are easy to count or many smaller items?

To a point, you’ll be able to cycle count any type of inventory, but if there are too many items, you’ll have to transition to a more technical and exact system. Smaller items or a larger warehouse

#2. Do you have employee capacity to cycle count?

You can’t do it alone. That’s just the way it’s going to be. You aren’t going to be able to cycle count an entire warehouse with one or two people. Cycle counting isn’t right for your company if you don’t have the employee capacity to work on the job as a whole team.

Alternatives to Cycle Counting

For smaller businesses, there some other options. One might be to count everything once a year. This isn’t always the smartest thing to do, but if you lack capacity, it’s not a bad decision. Do what’s right for your resources and business.

For larger businesses or businesses that want to grow, the best and most sustainable money-saving solution is software. With the right software, your company is going to be able to grow and produce more profit exponentially. Scout Inc. is a company completely dedicated to making your inventory process run smoother.

By working with an inventory management system, you’re able to produce item-specific barcodes and electronically track everything that comes in and out of your warehouse—ultimately eliminating the need to cycle count or count altogether.

If you’re a larger warehouse or you’re wanting to grow your warehouse more rapidly by efficiently tracking all of your inventory in secure online locations, consider looking into the different types of solutions offered by Scout. We welcome your questions and would love it if you’d reach out to us today!