Cycle Counting in Warehousing: Intro and Best Practices

,

In the world of warehousing and logistics, cycle counting is a process that is often misunderstood. Many business owners are unsure of what it is and why it is important.

This blog post will discuss what an inventory cycle count is and how you can implement best practices to make the most out of this process!

What Is Inventory Cycle Counting in Warehousing?

Cycle counting is the process of counting the inventory in a warehouse on a periodic basis. This helps to ensure that the inventory is accurate and up to date. It also helps to prevent stockouts and overages and the resultant shipping and warehousing errors.

Performing a cycle count is important because it allows companies to ensure that physical inventory SKU counts match their WMS records. Also, if the WMS is integrated to an ERP, the ERP ‘four-walls’ inventory can be balanced against the WMS location inventory.

This technique entails doing a routine physical count and making any necessary adjustments for specific SKUs. Over time, it ensures they have counted all their inventory.

What does inventory cycle count mean in simple terms?

Inventory cycle counting means that the inventory in a warehouse is counted on a regular basis. Warehouse and supply chain managers typically prepare a plan for their staff to audit the inventory. 3rd Party Logistics (3PLs) often are required to count their client’s inventory on a scheduled basis.

To do this efficiently, a system must be in place to allow inventory levels to be recorded while the staff performs their normal duties. Warehouses that are manual or paper-based, will have a more difficult time cycle counting than warehouses using a real-time WMS, due to the requirement of suspending inventory activities to ensure an accurate count. A real-time, non-paper-based WMS will not require the operations to stop activities. This greatly reduces the cost of a cycle count since normal business can continue.

Different Methods of Performing a Cycle Count

There are a few different ways to do an inventory cycle count. The most common count technique is to divide the warehouse into sections and count each section on a rotating basis. This ensures that all areas of the warehouse are counted regularly. This is often dictated by the finance group in terms of requirement and timing.

Another method is to count high-volume items more frequently than low-volume items. This helps to ensure accuracy for items that are more likely to move. However, many inventory discrepancies are actually in the slowest velocity items.

Here are a few of the different ways you can cycle count your inventory:

  • By location: This method is best for companies that have SKUs spread out across the warehouse or have an immediate inventory discrepancy that needs to be resolved
  • By ABC analysis: ABC cycle counting method is a way of classifying inventory based on importance. “A” items are the most important and are counted more often than “B” or “C” items. “B” items are less important and are counted less often than “A.” “C” items are the least important and are counted the least often.
  • By time period: This involves counting inventory at a regular interval. Such as once a week, once a month, or even once a year.
  • Random sample cycle counting:  Random sample cycle counting is a method where you select a random sample of items to count. Often, a WMS will suggest a sampling rate for performing the cycle counts based on velocity, value, etc.

What Are the Best Ways to Do an Inventory Cycle Count?

The best method for you will depend on your warehouse and what makes the most sense for your operation. You might even use a combination of methods. Before developing a cycle counting program, consider the options.

For example, if you have a small number of SKUs but they are stored in many different locations, you might want to count by storage location. This would involve going to one location and counting all of the SKUs stored there, then moving on to the next location.

The best way to cycle count your inventory is the method that makes the most sense for your warehouse and your operation. There is no one “right” way to do it. It is important though for complete SKU counts to be performed, not just location counts! Often the total inventory count is correct, but the locations are incorrect. A complete count on the SKU will uncover and fix these issues where a location only count, will not.

Experiment with different methods and see what works best for you. Cycle count performance is a result that management will want to analyze to see if discrepancies are within a tolerance and to determine the best cycle count method required.

The Difference Between Cycle Counts and Physical Inventory Counts

It’s important to understand the difference between cycle counts and physical counts. Cycle counts are done on a regular basis (weekly, monthly, etc.) and count all of the inventory in a selected area.

A physical inventory count is done less often (yearly, bi-yearly, etc.). Often companies will have to shut down to perform a full, physical inventory. Which is why companies strive to reduce or eliminate physical inventories by having strict, successful cycle counting procedures. Many customers with a real-time WMS, never perform a complete physical count and this results in significant ROI.

Inventory Cycle Count Benefits

Cycle counting can help businesses to become more efficient in their inventory management. Some of the benefits include:

  • Improved accuracy: By counting inventory items on a regular basis, businesses can ensure that their records are accurate. This helps to prevent stockouts and overages and improve customer service
  • Increased efficiency: Cycle counting can help businesses to become more efficient in their inventory management. This is because it allows businesses to focus on specific areas of their inventory, rather than counting the entire inventory stock.
  • Reduced costs: Businesses can save money by avoiding the need for physical counts. This is because cycle counts are less time-consuming and labor-intensive as physical inventories often require shutting the operations down for a period of time. As mentioned previously, the need for a full physical inventory may be eliminated.

Explaining the Inventory Cycle Counting Process

The inventory cycle counting process is relatively simple. First, businesses will select the area or areas that they want to count.

Then, they will count the inventory in those areas and update their records accordingly. Finally, they will repeat the process on a regular basis (weekly, monthly, etc.)

How Often Should You Cycle Count Inventory?

This is a common question with no easy answer that fits all businesses. The frequency of your cycle counts will depend on the size and complexity of your inventory, as well as how quickly stock moves in and out of your warehouse.

That being said, most warehouses perform cycle counts on a weekly or monthly basis. Some even count certain high-value or fast-moving items daily.

The key is to find a schedule that works for you and your team. The best way to do this is to start with a few trial runs and then adjust as needed. Implementing a real-time WMS and eliminating manual/paper processes allows for cycle counts to occur at any time.

When Should You Do a Physical Inventory Count?

A physical inventory count is a good idea if you suspect that your inventory counts are inaccurate. This could be due to theft, damage, or other factors. For 3PLs, clients will often contractually require a physical count.

Physical inventory counts are also required by finance/accounting in many cases.

Cycle Counting Challenges and Risks

There are many benefits of cycle counting. However, businesses should also be aware of the potential disadvantages of cycle counting, which include:

  • Disruptions to operations: Cycle counts can disrupt the normal flow of operations. This is because employees may need to stop what they are doing to count the entire inventory. However, as mentioned earlier, a real-time WMS will eliminate this requirement
  • Increased costs: Businesses may need to invest in additional technology or labor in order to conduct cycle counts.
  • Inaccurate counts: If not done properly, cycle counts can be inaccurate. This is because they are reliant on manual counting. SKU unit of measures for example, can cause inaccurate counts.

Despite these potential disadvantages, businesses can still benefit from cycle counting if it is done correctly.

Inventory Cycle Counting Best Practices and Tips

There are several best practices for cycle counting, which include:

  • Identifying high-value items: Businesses should focus their attention on high-value items when conducting a cycle count.
  • Counting in small batches: Counting inventory in small batches can help to improve accuracy. This is because it allows businesses to focus on a specific area and count the items more carefully.
  • Using technology: Technology can help to improve the accuracy of cycle counts. This is because it can be used to scan items and track inventory levels in real time. For instance, use an RF barcode scanner to speed up the process (WMS based)
  • Count inventory during slow periods: This will help to avoid disruptions to your operations.
  • Training employees: Employees should be trained on how to conduct a cycle count. This is because it will help to ensure that the process is conducted correctly. Mock or test cycle counts can help verify readiness of employees and the SOPs for the cycle counts.
  • Keep a running tally of inventory levels. This will help you to identify any discrepancies quickly. This ‘perpetual’ counting should always be occurring, and fixing issues quickly is important. A real-time WMS provides through normal day to day operations, perpetual counting. If inventory is incorrect, it is dealt with immediately!

By following these best practices, businesses can ensure that their cycle counts are accurate and efficient. This will help to improve inventory management and prevent stockouts.

How To Automate the Cycle Counting Process

There are several ways to automate the cycle counting process, which include:

  • Using WMS software: A WMS can be used to automatically implement cycle counting programs. This is because the WMS software can track inventory levels in real time and generate reports.
  • Using RF barcode scanners: Barcode scanners can be used to scan items and update inventory records automatically. This is a quick and easy way to count inventory. The RF barcode scanning will be part of a WMS.

By automating the cycle counting process, businesses save time and improve accuracy by eliminating the need for a manual inventory control system.

How Does Cadre Technologies’ WMS Help with Cycle Counting?

Cadre Technologies’ WMS helps with cycle counting by providing businesses with the ability to track inventory levels in real time via RF bar code scanning

In addition, Cadre’s WMS can be used to automate the cycle counting process. On-demand counting during normal operations is important. Also, the ability to implement cycle counting programs, such as A/B/C classification and inventory sampling, can satisfy finance requirements around frequency of counts.

By using Cadre’s WMS, businesses can save time and improve accuracy.

Final Thoughts

Cycle counting is a vital part of inventory management. By following the best practices, businesses can ensure that their cycle counts are accurate and efficient. In addition, automating the cycle counting process can save time and improve accuracy. It can provide a significant ROI for companies who are currently performing cycle counts manually.

If you would like to learn more about how Cadre Technologies’ Warehouse Management Solutions can help with cycle counting, please contact us today. We would be happy to answer any questions that you may have.

FAQs

What is the purpose of cycle counting?

The purpose of cycle counting is to improve inventory accuracy in a company’s inventory management system. This is because businesses can identify discrepancies quickly and take corrective action in the case of inventory errors.

Additionally, cycle counting can help businesses to save time and money through improved customer service (better fill rates).

How do automated inventory counts work?

Inventory counts work by tracking inventory levels in real time and not requiring paper-based batch updates.

Additionally, RF barcode scanners can be used to scan items, pallets, lot numbers, etc. and update inventory records automatically.

What is a good cycle count accuracy?

Inventory accuracy is a goal of all warehouse operators. A good cycle count accuracy is typically 99% or higher. This means that businesses can have confidence in their inventory levels and prevent stockouts thus improving customer service. This is very important for a distributor and for a 3PL, the owner (their customer) will require high accuracy.

What is cycle counting in WMS?

A WMS, or warehouse management system, can help you keep track of your inventory. This system can make it easier for your workers to count the items in the warehouse and store. They will scan each item as they check it. The WMS will later compare this to the records of what is supposed to be in stock. The most important benefit is eliminating the need to suspend operations to perform an accurate cycle count.