It’s a situation that no retailer ought to find themselves in: being unable to ship an item they thought they had on hand. Replenishing stock you thought you didn’t have can be just as bad. These kinds of inventory inaccuracies become very costly over time, both in terms of customer experience and the bottom line.
There must be a better way.
Believe it or not, it all comes down to a fundamental of inventory management: counting. Inventory counts give retailers valuable information about the stock they have on paper versus stock they actually have on hand. In other words, inventory accuracy.
Of the many inventory counting options out there, cycle counting is one of the most useful in helping retailers get there. Here’s a closer look at how cycle counts can improve your inventory management process.
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Cycle count vs. physical inventory
There’s no method more thorough (and painstaking) than a 100% physical inventory count. It’s a beast, often requiring a partial or full shutdown of operations to turn over every stone, address every discrepancy. Physical inventories are time-consuming, disruptive to business, and difficult to plan for.
And if you currently manage inventory counts using an Excel spreadsheet?
A physical inventory count is a high-effort inventory counting method used to determine inventory on hand and address any discrepancies. A physical inventory is usually done toward the end of a reporting period.
Cycle counts are the friendly, laid-back cousin of full inventory counts. Retailers of all sizes are using cycle counting as a viable alternative to the age-old physical inventory count. Cycle counting is a partial audit technique in which only a subsection of total inventory, at a specific location, on a specific day is counted.
With the help of mobile devices, barcode scanning, and inventory management software, the process can happen continuously, with the goal of eventually making it through the entire stock without ever having to shut down operations.
Cycle counts are used to count smaller subsections of inventory on a daily, weekly, or monthly basis. Under this method, staff will—as part of their daily tasks—gradually cycle through stock, addressing discrepancies as they go, until they have completed the full audit.
Also known as the “partial stock take,” the cycle count can be performed as a daily task or weekly task. It’s a kind of “gradually chip away at it” kind of approach, but far less disruptive than a physical count. In fact, cycle counting can help ensure inventory accuracy just as well—or better—than physical counts.
Done right, it can make full inventory counts unnecessary altogether.
Why you need cycle counts
That cycle counts provide a viable alternative to physical inventories should be music to any retailers ears. No more physical inventories?
Cycle counts make this a real possibility. But eliminating physical counts is only one of many benefits attributed to this method:
- Reduce your operating costs – Physical counts can create costly business disruptions and require you to, for example, pay employees to do overtime to perform the actual count. Cycle counting can be done as part of normal operations.
- Improve inventory accuracy – Conducting regular cycle counts will reveal discrepancies and allow you to address problems early before they compound and become unmanageable.
- Control inventory carrying costs – Keeping carrying costs down is a top priority in any warehouse. A major benefit of improved inventory accuracy is the ability to reduce the physical inventory you need to keep on hand.
- Capture revenue – Inventory inaccuracies will inevitably lead to lost revenue. Remember the nightmare scenario from above where a customer orders something but you don’t have anything to ship? If you have an inventory discrepancy that leads to a missed fulfillment and a possible customer service nightmare.
- Find the root cause of inventory issues – Over time, historical cycle counting data can reveal patterns around common discrepancies or inventory issues. For example, if a certain warehouse is consistently experiencing shrinkage during a specific time of year, you can investigate using historical data to determine the cause of this. Maybe it’s due to a high selling and busy time, or maybe it’s due to a couple bad actors.
Cycle counting best practices
To get the most out of cycle counting, we recommend adhering to the following best practices:
- Work cycle counts into daily operations – Many retailers will schedule cycle counts in the morning before the daily hubbub erupts in the warehouse. It’s important to not only give adequate time to staff for counting, but to incentivize high inventory accuracy. Choosing experienced staff members to run ongoing inventory counts is ideal.
- Count frequently – The frequency of cycle counts directly translates to improved inventory accuracy. Schedule cycle counts daily, if possible, and on an ongoing basis.
Good Processes = Great Return
Case Study: How JustBrand Limited Found $100k in inventory because of good processes and tracking software
- Use blind cycle counting – For increased count accuracy, your counter should not be aware of the inventory that should be on hand. The counter has a much, much higher likelihood of being bias or lazy if they are aware of what should be there. Once the counter has completed his count he or she will present their findings to the warehouse manager or supervisor for them to compare the results.
- Use double-blind cycle counting – In the event that a count is incorrect, a new counter is sent out to recount the inventory discrepancy. Again, this new counter is unaware of what the inventory levels should be or what the original counter counted. The counters only task is to report what they counted, and depending on the results that will determine the next course of action (inventory adjustment, no change, etc.) This can reveal additional insights and prevent counters from gaming the system.
- Look for opportunities for improvement – Using reporting and analytics, you’ll want to reconcile discrepancies in the short term. In the long term, and especially for larger retailers, it’s important to identify the root cause of inventory problems by cross-referencing reports to reveal patterns that might be causing shortages, discrepancies, or losses. This way, you can address staff training issues and error-prone processes as soon as possible.
- Use a combination of mobile devices, barcodes, and cycle counting software – Automating cycle counting allows for greater cycle count frequency and accuracy. Moreover, inventory management software can generate audit reports to show what went wrong, who is responsible, and where.
Adhering to cycle counting best practices can prove challenging when relying solely on manual processes. Herein lies the power of inventory management software. Used in conjunction with mobile devices and barcode scanning, inventory software can not only make the actual process of counting easier, but also generate the data needed to make smarter inventory decisions.
Though it is one of many inventory counting methods, cycle counting has the potential to make warehouse inventory cycles far more efficient. In conjunction with the right processes and software, it can be a major boon for your quality assurance initiatives and customer satisfaction overall.
Isn’t that what inventory accuracy is all about?
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