Cycle Count- Inventory Management!

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. Cycle counting is a popular inventory counting solution that allows businesses to count a number of items in a number of areas within the warehouse without having to count the entire inventory. This is a sampling technique where count of a certain number of items infers the count for the whole warehouse.

When a cycle count is performed, there are two inferences that are made. The primary inference is that the accuracy of the items in the cycle count can be used to determine the accuracy of the items in the warehouse as a whole. The other inference is that if an error is found in the cycle count then that error could be expected to occur for other items in the warehouse.

Types of Cycle Counting

There are a number of types of cycle counting that can be used :-

1. Control Group

2. Random Sample

3. ABC Analysis

Control Group Cycle Counting

When a company starts using cycle counting they may use a control group to test that the method they are using to count items will give the best results. The process usually focuses on a small group of items that are counted many times in a short period. This repeated count process will show any errors in the count technique which can then be corrected. The process is continued until the technique has been confirmed to be accurate.

Random Sample Cycle Counting

When a number of items to be counted are chosen at random, this process is known as random sample cycle counting. When a company’s warehouse has a large quantity of similar items, they can randomly select a certain number of items to be counted. The count can be performed each day or workday so that a large percentage of the items in the warehouse are counted in a reasonable period.

Two techniques can be used in random sample cycle counting; constant population counting and diminished population counting.

Constant population counting is where the same number of items are counted each time a count is performed. This can mean that certain items are counted frequently and some items are not counted, as the selection of items to be counted is random.

Diminished population counting is a technique where a number of warehouse items are counted and then excluded from being counted again until all of the items in the warehouse are counted. Each count selects items from an ever-decreasing number of eligible items to be counted.

ABC Cycle Counting

ABC cycle counting is an alternative to random sample counting. This method uses the Pareto principle as the basis for this technique. The Pareto principle states that, for many events, roughly 80 percent of the effects come from 20 percent of the causes. The ABC cycle counting method uses this principle to assume that 20 percent of the parts in a warehouse relate to 80 percent of the sales, these are the “A” items. The principle is then extended to two other categories where “B” items account for 30 percent of the items and 15 percent of sales and “C” items represent 50 percent of the items in the warehouse, but only 5 percent of sales.

Before a cycle count can be performed, the items in the warehouse have to be identified as A, B or C items. This is usually achieved with the help of a computer system, such as inventory control software. Once each of the items in the warehouse has been assigned a category, the number of times each category should be counted needs to be determined. The items with the highest sales value should be counted more frequently than items that have low sales. Therefore, an item that has been assigned as an “A” item will be counted more frequently than items that are designated as “C” items.

The ABC cycle count does have issues. Warehouses with a large number of distinct items may find that they are counting many times a day. The warehouse may not have enough resources to complete the required number of counts.

Cycle Count Best Practices

Here are some best practice tips to follow:

Only count one category each month. This allows you to hit everything more than once per year. It also keeps you focused. And, frankly, it's the amount of inventory you can handle in this type of count. Cycle counts should never close the store. In other words, you should be able to complete the count during normal business hours or maybe within a couple of hours after close.
Pick which category to count based on selling season. For example, there is no need to count long sleeve shirts in July. Count your shorts in July. The idea of cycle counting is to be able to respond before the season ends. In other words, fix the errors on products that are selling now. While it does make sense to cycle count for planning purposes for the Fall, the real benefit will come when you can respond immediately while the products selling opportunity is at its peak.
Assign a section of the store to an employee. Make one person accountable for an area. I did this for years, and it made a huge difference. They kept it maintained and cleaned and merchandised. That person completed the cycle count. It was included in the employee's performance review each season. Note: We always had a manager help with all counting as part of a check and balance system. You don't want the person mismanaging or worse stealing your inventory to be in charge of counting it.
Post results for employees. While you don't need to share all exact dollars with your employees (however, I always did) it helps for them to know how they are doing. If there is a loss, they should know. Often, it is the employee who can help you stop the leak and keep your inventory from shrinking. I can name several times it was an employee who solved the mystery, not me when it came to inventory issues.
Don't publish your count plan schedule. Keep the employees guessing? While I suggested pick the category based on seasonality, you don't want to be too predictable. Again.he internal thief will find the practice of knowing what you're counting very beneficial for his or her planning as well.