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eCommerce Tips & Trends

Cycle Counting: What is It & How to Optimize it?

Learn the the basics of inventory cycle counting for your eCommerce store and how to manage it properly in our latest guide.
Cycle Counting: What is It & How to Optimize it?
Jules

By Jules

 

September 14, 2020

Inventory management is the foundation around which your eCommerce business is built. But if not done wisely, it can turn into a whirlpool, entangling the whole process and bringing it to a complete halt.

If not managed properly, you can find yourself in the dilemma of being overstocked or out of stock, more often than not. That’s where the inventory cycle count comes in handy.

Did you know that by decreasing the overstock numbers you can decrease the overall inventory cost by 10%? On average, retailers in the US have 63% inventory accuracy of their stock, and 30% of them sell things that are out of stock because of mismanagement.

Inventory cycle counting not only helps retailers in aligning their inventory and removing discrepancies, but it also helps them in making investment decisions, engineering priorities, planning replenishment systems, and carrying out security decisions.

Trendy apparel store
Photo by Clark Street Mercantile 

What is an Inventory Cycle Count?

Cycle count is, by far, the most effective procedure to take stock of what’s currently in a given warehouse. Simply put, cycle counting is a time-saving effort.  Here’s how it works: Instead of counting the whole physical inventory in a given factory and halting the whole supply chain, a small set of items is picked periodically and counted. The result of the count is considered as reference and is compared with the count in your system to determine if it matches or not. This is done with subsets of different categories or storage areas according to a given schedule.

Why Does it Matter?

Cycle counting is key for inventory management in terms of purchasing and sales logistics.. If your inventory is huge, the amount you’re keeping in storage will also likely be huge.

So keep track of every physical item would mean closing down the warehouse and counting each item, one by one. This would require a lot of time, and you’d have to reschedule your shipments and orders to make up for the time lost to counting. Without an effective inventory management solution, your business could be at risk of losing revenue.

Other benefits of inventory cycle count include:

  • Helps you steer clear of over-ordering products
  • Improves accuracy and efficacy in inventory management
  • Helps to organize warehouse storage
  • Realistic assessment and valuation of your physical inventory in your warehouse
  • Helps in investment and security decision making

Get to Know the 3 Types of Inventory Cycle Count Procedures

Mainly there are three types of cycle counts. You can use them individually or build a strategy to use them simultaneously.

1. Control Group Cycle Counting:

According to this type of counting strategy, you should count a small set of items repeatedly over a short period to find if there are any errors. This will also reveal any issues in the counting technique that might be causing errors. This process is repeated until all issues in counting are resolved.

2. Random Sample Cycle Counting:

A random sample count is comparable to a pop quiz you had back in high school. A group of items is randomly selected from your storage and counted. It’s ideal if you have a huge inventory and storage. Random counts can be conducted daily to cover a large number of items in a short span of time in a large warehouse. This has the added benefit of not disrupting one category all at once and the count can be done during business hours.

3. ABC Cycle Counting:

This counting technique uses ABC inventory management and the Pareto principle. First, you classify items in A, B, and C categories based on value. Following this guideline, A category items are counted more frequently than B and C category items. Items are placed into categories depending on the sale frequency and monetary value.

  • A items are high value and high sale volume items that don’t take much storage space. Typically, they are counted quarterly
  • B items have a higher cost and less frequent turnover than A items. They are counted twice per year
  • C items are the slow-moving and contribute the least to inventory, percentage-wise. They are counted once a year.  

10 Cycle Counting Best Practices to Implement Today

To get the best results, there are a few things you might want to include a few things in your inventory management strategy. These cycle counting best practices include:

  1. Make cycle counting a regular procedure for your storage facility instead of a one-time thing. Frequent and regularly scheduled cycle counts can help you in identifying any latent issues at an early stage. It also means low inventory write-offs. Large warehouses have a daily cycle count of different sections and categories to cover the complete inventory
  2. When compared, ABC cycle counting is more effective than random cycle counting. Regular counting of high-value items makes more sense and is more accurate than taking a random group of items to be representative of the whole.
  3. You should pay the most attention to the A category of your inventory. Although it comprises 20-25% of your inventory, it gives the highest return on investment. Frequent counts can help you with finding any discrepancies — and it can be applied to other groups as well
  4. A dedicated trained team to perform inventory cycle counts should be assigned for the task. If you have a large inventory, then a large team can do the cycle counts regularly. If your inventory is small, then a few employees can be assigned the task to be completed daily during office hours
  5. Two different teams should review the items before updating any official counts in order to find discrepancies for reviewing
  6. Make sure all the transactional activity is temporarily closed once a set of items are selected to be cycle count.
  7. Aim for inventory accuracy by keeping track of the inventory metrics. This will tell you where the system is improving or failing over time.
  8. The ideal time to perform cycle count is either the start of the day before the operations begin in the storage facility or at the end of the day when the operations are closed.
  9. Maybe this is intuitive, but the full cycle count process should be organized and documented for future reference.
  10. Understand the importance of keeping cycle counting and inventory recording as different procedures. This will increase the accuracy of your inventory management.

Easyship Connection

At Easyship, we know how important a seamless end-to-end customer journey is. That’s why we have a wide network of warehouses globally. We help you outsource your distribution and order fulfillment using the best 3PL providers and warehouses around the world. Our teams take inventory management seriously, using industry standard, best-in-class techniques to take stock of what’s...in stock and get it where it needs to be.

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