Inventory management is crucial for any business. Ideally, you want to have a product on hand when the customer wants it, where they want it and have the ability to sell it immediately. If you have a product and a customer doesn’t want it, then you must pay carrying costs (labor, rent, utilities) to store it. If you don’t have a product and a customer wants it, then you have either lost a sale or you will pay more money to get the product to the customer (or to make an additional product for the customer, if you can). Either scenario should be avoided if you want your business operations to run smoothly. That’s why inventory management is so vitally important.
What is a Cycle Count in Terms of Inventory Management?
Having an accurate inventory count is essential for inventory management. However, performing a full-blown physical inventory count may be impractical or impossible. Moreover, the loss from shutting down a warehouse is simply not an acceptable business practice for many.The alternative is a set of inventory practices called cycle counting. There are several ways to do cycle counting. As such, let’s look at how cycle counting works and address the issues it solves. This introduction to cycle counting can help you make decisions that will improve your inventory management and your bottom line.
The Cycle Count Inventory Definition
Wikipedia defines cycle count as “… an inventory auditing procedure, which falls under inventory management, where a small subset in a specific location, is counted on a specific day.’A stock cycle count uses the same statistical methods as political polling. There are a few different cycle count methods that can help you track your inventory effectively, which we discuss in detail below.
Inventory Cycle Count Processes & Procedures
To prepare for an inventory cycle count, follow the steps outlined below.
ABC inventory classification in the inventory cycle process
This is a method of breaking down your inventory into three classifications – A, B, and C.“A” inventory is your bestselling, highest margin merchandise providing the best profit to your business. This might represent 20% of your inventory, representing the Pareto principle in action.“B” inventory sells at a moderate pace and only earns a moderate margin. This can represent theoretically 70% of your inventory.“C” inventory is your slowest moving, lowest margin merchandise.Each of these categories is important for conducting cycle counts, as counting “A” category merchandise (that is, the most in-demand and fastest-moving inventory) will have the greatest chance of detecting inventory irregularities due to instances of movement.
Different Types of Cycle Counting
The Pareto method
This method was invented by management consultant Joseph M. Juran, who puts forth that 20% of causes produce 80% of consequences. Items are counted by tracking inventory value, aka “A” inventory values. The drawback is that “B” and “C” items may be more likely to be miscounted, but necessary inventory can disrupt manufacturing if missing.
Cycle count by usage
This method counts inventory that is more frequently touched, moved, or used, regardless of value. The more something is touched by employees, the more of a chance of variance and therefore the higher need to be tracked. The drawback here is that higher value inventory isn’t counted as often, and additional counting might be required to match accounting records.
Hybrid inventory counts
This mixed method uses Pareto style frequency analysis. Then, counting frequencies are changed based on the item’s ABC code, the item’s dollar cost value, and other values on an ad hoc basis. This method requires manual changes and is not as statistically stable due to the ability to make arbitrary adjustments.
Inventory Cycle Count: Best Practices
In preparing for a cycle count, these best practices should be kept in mind:
Organize the inventory
Get rid of scrap, junk, and unusable inventory (but include this towards write off count!)
Generate list of items to audit
This will be based on the method of cycle count you’ve adopted, as noted above.
This is where you will conduct your actual count. Hand scanners, RFID, and other functions from your inventory management system will be of great help.
At this stage, you can identify discrepancies in your count and take corrective action.
Repeat according to the frequency cycle you’ve chosen.
What is Inventory Cycle Time?
Inventory cycle time is how long it takes to manufacture a product, from start to finish. This includes delays due to various parts not being available. As such, gaps in inventory counts can have a profound effect on inventory cycle time. Closing gaps in inventory counts is essential to shortening inventory cycle time.
Goals of a Cycle Count
What does cycle count mean in inventory management? Well, cycle counts, at the end of the day, are designed to determine inventory accuracy and to speed up production times. While a cycle count won’t pick up every single inventory error, they are great at determining the causes of inventory errors and are thus essential to improving inventory accuracy and reducing cycle time.
Inventory Accuracy: How Revel Systems Can Help You with Inventory Cycle Counts
Now that you are better informed on what is a count cycle, let Revel Systems help you create an effective solution for your business. Revels Systems works with businesses of all sizes to help them improve their inventory processes. Do you need help with your inventory management processes and inventory accounting? Schedule a free demo today!