Inventory management can certainly feel like a thorn in the side of any inventory-based business. The wrong item out of stock at the wrong time can create significant cost and reputation concerns. Inventory management should be able to solve this issue, but even traditional inventory management won’t always have a wide enough focus to give you the most complete view. That’s where cycle counting comes in.
Traditional Inventory vs. Cycle Counting
Traditional inventory audits or stock takes, involve counting all the stock the organization has on a particular date, usually at the end of the month or the year. This includes inventorying everything for manufacturing, engineering, raw materials, and so on. The task can be daunting but must be done accurately.
Cycle counting, on the other hand, is a process of counting a predetermined portion of the total inventory more frequently throughout the year at regular intervals. This results in a far more accurate stock control account. Additionally, cycle counting can be based on several different criteria based on a company’s unique needs. The stock control policy will outline the main criteria, such as frequency to count high-value items, acceptable loss criteria, and level of focus for areas that are experiencing inventory management issues.
What Are the benefits of Cycle Counts?
Traditional stock take can cause several problems for an organization, not least of which is the requirement to “freeze” the organization while stock take is carried out. The organization must shut down a branch or factory for the period to ensure stock take is completed quickly and accurately.
Cycle counting alleviates many of these issues by:
- Minimizing process disruptions: The count focuses on a selected range of stock, and therefore can be carried out in parallel with a company’s normal operations, causing minimal disruption. Cycle counting represents a streamlined and less disruptive method of inventory management, and does not require “freezing” operations.
- Speeding up corrective actions: Due to the frequency of the counting of the same stock item, Cycle counts can quickly determine where the inventory management issues occur, uncover the causes of these problems, and allow a suitable corrective action to be implemented. The cycle counting process can then be used to monitor and verify the relevant controls.
- Guiding stocking, production and distribution decisions: Every organization looks to reduce costs, and a large portion of capital sits in inventory. A typical response to improving customer service and lost sales is to ensure the organization has more stock in the warehouses, and WIP in the plant. But this negatively affects the cash flow and can kill a business.
- Empowering accurate and frequent decision-making: A far more accurate stock position allows for more accurate and more frequent decision making, regular and improved reviews against forecasts, and less chance of stock-outs or over-stocking and write-offs for redundancy.
- Minimizing staff disruptions: Cycle counting has less impact on the availability of staff for other operational processes like stock control and distribution functions. Not only is it less disruptive to your operations, but it’s also less likely to introduce delays into your fulfillment processes than full stock takes.
- Improving customer service: Insights gained from cycle counts ultimately benefit your customers by helping you better manage your stock—not just how much of it you have, but also where it’s held, and the proportion of what’s held relative to other stock items. This in turn will ensure improved focus on your lead times and manufacturing priorities and ensure that you’re focused on producing on time.
- Increasing stock turns: Cycle counting can also increase stock turns and reduce inventory costs by minimizing the time that stock spends in your inventory.
Remember that while cycle counting is not inherently risky, it’s not foolproof. Don’t rely on cycle counting’s “snapshot” view at the expense of good stock control processes.
Three Approaches to Building Cycle Counting
Cycle Counts are subject to multiple variables, such as team capacity, count scope, frequency, and item location. As you’re developing the best methodology for your organization’s needs, keep these three approaches in mind. They can be used individually or in a hybrid approach.
Approach 1: Control group cycle counting. A small group of items are counted a number of times across a very short time period. Over time, this repetitive counting uncovers any errors in the count process. After these errors in the process are correct, the process can be applied across multiple areas to more and more product categories.
Approach 2: Random sample method. This approach to cycle counting entails the periodic selection of random items. This method is most commonly used in warehouses that contain a large number of similar items, but also will check the process and highlight any odd behaviors.
Approach 3: ABC inventory analysis. One of the most commonly used methods is the ABC inventory analysis approach. This strategy ranks SKUs based on the highest to lowest annual sales volume at cost. A lot of preparation is required as every item is assigned a letter, Higher-value items that move most frequently will be identified as “A” items and counted more frequently, while the redundant stock, allocated as “C,” probably counted only once per year.
ERPs, Cycle Counting, and PositiveVision
No matter how you choose to run your cycle counting, your ERP can benefit greatly from the data cycle counting produces. Not only can your ERP data help plan cycle counts, it can assess and help analyze the counts to highlight weaknesses in your inventory control. ERPs can also use cycle counting data to yield process streamlining and cost-saving benefits.
If you’re ready to implement cycle counting with your ERP, talk to the professionals at Positive Vision. With plenty of experience helping businesses find the right accounting software, warehouse management software, and ERP solutions, PositiveVision can ensure that you’re set up for cycle counting success and beyond. Contact one of our knowledgeable professionals now.