Editor's Note: This post was originally published in February 2015 and has been updated for freshness, accuracy, and comprehensiveness.
When you need to count your inventory, you have a few choices. In the past, the majority of businesses did the less-than-ideal “year-end” count; recently, however, cycle counting has become more popular due to its superiority and better inventory control.
Why Not a “Year-End” Count?
Year-end inventory counting is inefficient for several reasons. For one thing, it's necessary to count outside normal business hours, because your numbers won’t be accurate during a working day when items are moving between shipping, receiving, the warehouse, etc. Therefore, you must either shut down for the time it takes to do the count or do it after you’re closed for the day. Both options cost extra money in the way of either lost customer sales or employee overtime.
What’s Different About Cycle Counting?
Cycle counting is counting small amounts of inventory on a more frequent schedule. There are many, many different ways to set up a cycle counting schedule: you could count aisle A the first week of every month. Or 10% of your inventory every week. Or your highest priced, fastest moving items every day. However you choose to do it, the important thing is consistency. Once you decide on a count schedule, you must follow it religiously.
Cycle counting is more efficient than year-end counting because you have a more accurate view of your inventory all the time. If an item isn’t where your system says it is, you’ll find out much faster – and have an opportunity to find it – than if you use a year-end count. Finding issues and solving them as they happen can save a lot of money at the end of the year.
Cycle counting can also cut down on internal shrinkage. If, during a year-end inventory count, you discover a lot of missing inventory, you'll find it difficult to pinpoint when it occurred. Cycle counts serve as spot-checks, allowing you to find shrinkage sooner. The sooner you find it, the easier it is to pinpoint its origin and, if it's employee theft causing the shrinkage, it serves as a deterrent by showing employees that you’re paying attention and that theft won’t go unnoticed for a year at a time anymore.
How Do I Implement Cycle Counting?
If you don’t currently perform cycle counts, you can get started by defining a strategy:
- How frequently will you count?
- How much product are you going to count when you count?
- What’s the final goal? For example,
- Do you want to count 100% of the inventory every quarter?
- Do you want to count 100% of the inventory every month?
Once you have a strategy, there are other questions to answer:
- Will the counts be blind?
- That is, will the counter know what number they’re aiming for, or are they counting with no frame of reference?
- Who will do the counting?
- Who will handle the completed inventory counts and compare them to what the system says?
- That is, who will have control over reporting what inventory you theoretically have versus what inventory you physically have?
- Which employees will have access to this information?
- What will you do when you find errors or shrinkage?
When you answer those questions, make an action plan, and execute it, you’ll be amazed at how much more control you have when it comes to inventory management. At Southeast Computer Solutions, we also suggest a good warehouse management system or inventory control software.
To learn more, please contact us today.
About Southeast Computer Solutions
Southeast Computer Solutions is based in Miami, Florida, and has additional operations in Mexico. For over 30 years, we have positively impacted the success of small and mid-sized businesses with effective business management implementations that improve our clients’ operations. We listen, we are accessible, and we care. Learn more by visiting our website or calling 305-556-4697.