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December 29, 2020
Cycle counting is a method of counting inventory in which a small number of items are counted per day. It’s considered an inventory auditing procedure that falls under the general category of inventory management. Tracking inventory can be a challenge for any business with a high sales volume, but good cycle count procedures can improve efficiency and reduce waste. The purpose of cycle counting is to improve accuracy and provide companies with better inventory figures counts year-round. This allows them to fix inventory errors faster, before they become a major problem or substantial loss.
Traditional inventory-taking usually involves a time consuming full physical inventory count once per year. During this time, production or standard warehouse operations are usually suspended. The company may also have to lease additional warehouse space or pay overtime wages to employees engaged in the counting process.
The cycle counting process can also be done along with a traditional annual inventory count. In this scenario, both the annual count and the ongoing count would be used to verify one another’s accuracy. This improves inventory accuracy. and allows you to monitor inventory levels year-round.
Benefits of Cycle Counting
Cycle counting offers multiple benefits over relying solely on an annual inventory count, including:
More Frequent Updates – An annual inventory tells you what’s in your warehouse once per year, while cycle counting keeps you updated on what’s in your warehouse year-round. It provides more accurate inventory counts and reduces human error.
No Lost Production Time – Compared to an annual inventory count, cycle counting is cheaper. It’s less disruptive to operations, which means no lost production time. Businesses can also avoid incurring extra costs in the form of leasing additional warehouse space or paying overtime wages to warehouse employees engaged in the counting process.
Identify Problem Areas in Inventory Faster – Cycle counting allows companies to identify—and correct—problem areas in inventory faster. This means smoother business operations and less waste in the form of lost or mishandled products.
How Does Cycle Counting Work?
Cycle counting involves counting a small number of items per day until your entire inventory has been counted. Companies can also choose different counts for different types of items. The number of cycle counts indicates how many times per year a certain type of item will be counted. Choosing a count of six, for instance, means that the item will be counted in its entirety six times per year, while a count of four means that a complete inventory of the item will be taken four items per year. It is common for companies to count high value items more often than less expensive inventory.
Employees use handheld scanners or other devices to scan a small number of items per day. Generally, they are given instructions or counting sheets that indicate what types of items they will be scanning each day. There are three main types of cycle counting: ABC analysis cycle counting, process control group cycle counting, and opportunity based cycle counting.
What is ABC Analysis Cycle Counting?
Many companies use what is known as abc cycle counting or an abc analysis. It’s a method used in inventory management based on the Pareto principle, which is more commonly known as the 80-20 rule. According to this principle, 80% of outcomes result from 20% of all inputs or causes. The idea behind the principle is to identify and prioritize those inputs that have the biggest impact on productivity.
Under abc cycle counting, products are divided into three categories based on cost:
- A Items – These are the most expensive items that require tight inventory controls.
- B Items – These are moderate value items that require moderate inventory controls.
- C Items – These are low value items that require minimum inventory controls.
With cycle counting, companies prioritize these different types of items differently. As an example, they may count their entire inventory of A items 6 to 8 times per year while only counting their B items 4 times a year and their C items once a year. This allows them to prioritize counting the items that will have the biggest impact on their inventory accuracy and bottom line. It is standard for employees to perform cycle counts at the beginning or end of the workday to improve accuracy and minimize disruptions.
What is Control Group Cycle Counting?
Control group cycle counting is a test to uncover errors in counting technique. Once these errors have been uncovered, the company can them apply any findings from the test across multiple product categories. Control group cycle counting involves focusing on a small group of items that are counted repeatedly over a short period of time.
What is Opportunity Based Cycle Counting?
Opportunity based cycle counting focuses on auditing inventory during critical times, like when recorded stocking levels dip below a certain threshold or when items need to be reordered. This method of cycle counting can help reduce the time needed to perform and reconcile a count. It also ensures the stock levels are updated near the time when inaccuracies could become costly while preventing premature ordering.
Automated Inventory Cycle Count
We offer a tool called Automated Inventory Cycle Count (AICC) for Sage 100, Sage 300, and Sage 500. AICC gives companies an easy way to manage cycle counting in Sage ERP across multiple locations. It automatically designates different cycle counts for different items and emails daily counting sheets to warehouse employees. It’s an integral part of an effective inventory management system. AICC automatically prompts employees to count items at a specific time each day, usually before or after the work day to ensure accuracy and minimize disruptions.
Watch the video below for a short explanation of how AICC works in greater detail.
Cycle Counting FAQ
The cycle counting benefits include:
- Better Inventory Accuracy
- Reduced Operational Disruptions
- Faster Identification of Inventory Problems
- Better Order Fulfillment
- Improved Customer Satisfaction
- Better Forecasting & Planning
While cycle counting provides many benefits, there are also some cycle counting disadvantages, too.
The disadvantages of cycle counting include:
- It’s resource intensive.
- It requires additional employee training.
- While cycle counting is often less disruptive to operations than a traditional annual cycle count, it can still interfere with daily warehouse operations.
- Cycle counting may not be suitable for all industries, like construction companies or businesses with complex inventories.
The 80/20 rule for cycle counting, which comes from the Pareto Principle, states that roughly 80% of consequences come from 20% of causes. In the context of cycle counting, this rule is used to focus inventory counting efforts on the most significant items, meaning the items have most value or the most movement.
The best frequency for cycle counting depends on the needs of each business, the type of goods they sell, the size and complexity of their inventory, and how quickly stock moves in and out of their warehouse. Cycle counting best practices often involve counting different types of a different number of times per year and conducting counts at the beginning or end of the workday to minimize disruptions.
Random sample cycle counting is an inventory management method that involves counting a random sample of items at regular intervals. It helps companies improve the accuracy of their inventory counts year-round.
Compared to other cycle counting methods like abc analysis cycle counting, random sample cycle counting is generally easier to implement. However, it may miss errors if the sample size is too small or be less effective in environments with more unevenly distributed inventory.
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CertiPro offers software solutions and inventory management software for companies looking to save time and money. We offer full implementations for Sage 100, Sage 500, Sage CRM, Sage Fixed Assets, and Sage X3. We also offer custom enhancements and end-to-end support for Sage Magento integrations. Click here to contact us and see what we can do for you.
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