Cycle Counting: A 3-Part Guide to Mastering Your Physical Inventory Counts

What is Cycle Counting? 

Cycle Counts have become increasingly popular as an inventory management technique for verifying the quantity and quality of a business’s stock, where a subset of the inventory is counted in specific locations, on specific days, and on a recurring schedule. By counting subsets of your inventory regularly, this technique focuses on maintaining day-to-day accuracy. When planned and executed properly, Cycle Counting programs can potentially replace the need for annual Full Inventory Counts. 

Cycle Counting allows operations to continue as usual because counting happens in portions, simplifying the detection and correction of inconsistencies between the count and the expected on-hand amounts.  

How it Works:  

• Inventory is divided into cycles or batches 
• A portion of the total inventory is assigned to each cycle 
• Cycles can be based on location, product type, bins, ABC analysis, etc. 
• A different cycle is counted on a recurring schedule 
• All inventory is counted over a defined timeframe 
• Counts focus on day-to-day accuracy rather than full yearly counts 

What to Keep in Mind with Cycle Counting  

It can take time for Cycle Counts to cover all of the inventory items over the course of a year, and it may not meet the accounting rule and tax regulations if your business is required to perform a Full Inventory Count. On the other hand, being able to demonstrate a consistently accurate track record of effective Cycle Counts has proven to be a safeguard for many businesses that have been required to perform Full Inventory Counts in the past. 

When planning what to count and when for Cycle Counts, consistency is key. There are a number of item selection systems that have been proven effective, including simpler methods like control groups or random samples, or more strategic methods like ABC analysis, Bin analysis and Item Type analysis to name a few. 

Cycle Counting Step-by-Step Guide: 

1. Divide inventory into cycles or batches 

1. Assign a portion of the total inventory to each cycle 

1. Determine cycle methodology (location, product type, etc.) 

1. Create a counting schedule recurring each cycle 

1. Count the items in the scheduled cycle 

1. Record counts and compare them to expected amounts 

1. Research and fix any discrepancies found 

1. Repeat the process for each cycle until all inventory counted 

1. Analyze results, and adjust cycles as needed 

1. Continuously maintain accuracy with regular counts 

The Benefits of Cycle Counting 

When implemented effectively, cycle counting can provide you with the following benefits: 

Advantages: 

• Allows operations to continue during counting 
• Enables more frequent verification of inventory 
• Promotes ongoing accuracy of inventory records 
• Reduces time and labor required for counting 
• Simplifies the correction of discrepancies 

Potential Drawbacks 

However, cycle counting does have some possible downsides to be aware of, including: 

Disadvantages: 

• May not satisfy full count requirements from regulators 
• The entirety of inventory is not counted until the cycle is complete 
• Requires reliable inventory management system and trained staff 

Leverage Technology for Efficient Cycle Counting 

Having an intelligent ERP system like IndustriOS at your disposal can make these more strategic methods of Cycle Counting a breeze, by leveraging the power of your system to create smart item grouping methods and setting appropriate counting frequencies.   

These analysis tools, coupled with the Physical Counts Workbench and Mobile Counting Methods, can drastically transform your Inventory Management Systems, improving your Inventory Management Controls with an efficient and accurate solution for the future.   

Conclusion  

This concludes our 3-part guide to mastering physical inventory counting. Proper planning and leveraging the right tools can help companies implement counts that provide maximum value with minimum disruption.  

If you haven’t done so already, we highly recommend reading the first two parts of this series, Introduction to Physical Inventory Counts and Full Inventory Counts, to gain a comprehensive understanding of Inventory Management & Physical Inventory Counting.  

Our trusted IndustriOS Professional Services team is ready to advise you and your team on designing a process that best fits the needs of your company.  

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  Full Inventory Count: A 3-Part Guide on How You can Excel Your Inventory Management

  In the first part of this 3-part series, we covered the basics of physical inventory counting including the types of counts and their benefits. In this post, we'll dive deeper into one of the main counting methodologies—full inventory counts.