What is the Inventory Cycle Count? Methods and Best Practices

Cycle count is a smart and efficient way to track inventory by counting small portions at regular intervals instead of conducting a full audit all at once. It uses statistical sampling to estimate the accuracy of inventory records, making it less overwhelming and more manageable for businesses. Physical inventory counts require you to tally 100% of your stock and often disrupt operations. Instead of this, cycle counting distributes the task over time, maintaining accuracy without halting workflows. 

The purpose of cycle counting is to correct discrepancies before they become bigger issues, and your inventory stays consistently up to date. Depending on the size of your inventory, you can schedule this process daily, weekly, or monthly. Allow specific employees to focus on smaller portions to make it more streamlined and reduce errors. Ultimately, cycle counting saves time, minimizes stress, and offers a reliable way to ensure inventory accuracy without the hassle of a full physical audit. Keep reading if you’re interested in discovering ways to optimize the cycle count process for your inventory.

What Is a Cycle Count? 

Cycle count is an efficient checks-and-balances system that helps businesses ensure their physical inventory matches what’s recorded in their inventory system. The inventory cycle count process entails a periodic count of small portions of your warehouse inventory, ensuring that over time, every item gets checked and accounted for. The cycle count follows a predetermined schedule and fits seamlessly into the daily business operations. It can be scaled as the business grows by increasing the frequency or scope of counts. Why is it important to establish a regular schedule for taking inventory? Regular checks help catch problems before they affect production or customer orders.

How Cycle Count Affects  Inventory Accuracy 

Cycle count gives businesses continuous insight into their inventory accuracy. So, it makes it easier to spot and investigate any discrepancies as they happen rather than waiting for a yearly audit. 

Inventory accuracy can be measured by either the count of items or their total cost. To assess inventory record accuracy (IRA), use the formula:

IRA = Matched inventory / Total items counted

The aim of cycle counting is to find and correct any discrepancies in your inventory records. Like any process, it's useful to track your performance and see if it's improving, as well as how you compare to industry standards. A common KPI for this is the IRA figure, which you can calculate using either unit counts or dollar totals.

For dollars or units, the formula is:

IRA = [1 - (sum of absolute variance/sum of total inventory)] x 100

Cycle Count vs Physical Count

Physical inventory counts all stock once or twice a year, while cycle counting regularly checks smaller sections. This makes physical counts ideal for businesses with minimal inventory. Taking a physical count of inventory requires pausing operations so staff can count each item in the warehouse. There are several ways to approach cycle counting. Many companies use it alongside an annual physical count, which works well for those who already have a good handle on their inventory. 

How Do You Calculate Cycle Count 

To calculate cycle count frequency, divide the total number of counts by the number of items or locations in the warehouse. For instance, if you count 600 items throughout the year and there are 1,200 items in the warehouse, your cycle count frequency would be 0.5. Here are the proper steps to do it if you are wondering how to do cycle counting:

1. Review your inventory records.
2. Set targets for accuracy levels.
3. Begin counting.
4. Resolve any discrepancies.
5. Put in place any needed procedures.
6. Update your inventory records.
7. Calculate your inventory accuracy.
8. Repeat the cycle regularly.

Cycle Count Policy and Procedure

A cycle counting policy outlines how often counts are performed to verify inventory balances. You should decide if they’ll count items randomly or follow a set pattern and whether they’ll include occasional special audits as well. SOPs for your cycle count in warehouse should clearly outline roles and responsibilities, as well as the processes, safeguards, and controls involved. You should also include steps for corrective actions when needed.

Cycle Counting Methods

Cycle counting can be approached in various ways, each suited to different needs and inventory setups. By selecting the appropriate cycle counting method and frequency, companies can maintain accurate inventory records and streamline their inventory management processes. So, let’s review the main types of cycle counting: 

ABC Cycle Counting

Based on the Pareto Principle, which suggests that 80% of effects come from 20% of causes. In inventory, this means that a small percentage of items (A items) account for most of the value or activity.

Categories:

• A Items: High value or high demand, counted most frequently (e.g., monthly).
• B Items: Medium value or demand, counted less frequently (e.g., quarterly).
• C Items: Low value or demand, counted the least often (e.g., annually).

Random Sampling Cycle Counting

Items are selected randomly for counting. This method can be performed daily or over a set period to ensure a broad sample of inventory.

Sub-methods:

• Constant Population Counting: A random sample is chosen each time, which might result in some items being counted more than once and others being missed.
• Diminished Population Counting: Once an item is counted, it is excluded from future counts until all items have been counted.

Control Group Cycle Counting

A small, selected group of items is counted repeatedly over a short period to identify and correct errors in counting techniques. This is useful when starting with cycle counting to refine processes and ensure accuracy.

Opportunity-Based Cycle Counting

Items are counted at critical points in the inventory process, such as when they are ordered, received, or shipped. It helps ensure accuracy during key stages of inventory management.

Objective Counting by Surface Area

The warehouse is divided into smaller areas, and items are counted based on their physical location. This ensures that storage locations are accurate and can help identify patterns in discrepancies.

Take a look at this table if you are still confused about how often your inventory should be counted:

Benefits of Cycle Counting

• Improved order fulfillment rates: Ensures that more orders are processed accurately and promptly.
• Enhanced customer service: This leads to better customer satisfaction and fewer complaints.
• More precise inventory assessments: Helps maintain accurate stock levels and reduce discrepancies.
• Increased sales: Accurate inventory can boost sales by ensuring popular items are always in stock.
• Extended time between physical stock counts: Reduces the need for frequent full inventory checks.
• Fewer errors: Minimizes mistakes in inventory records and order processing.
• Reduced inventory write-offs and obsolete stock: Lowers the financial loss from unsold or expired items.
• Overall operational efficiency: Streamlines processes, making the entire operation more effective.

Cycle Counting Best Practices

• Schedule Regular Counts: Make cycle counting a routine part of your operations. Regularly scheduled counts can identify issues early and minimize large discrepancies.
• Classify Items Using ABC Method: For efficient counting, classify items into A, B, and C categories based on their value and movement. Count A items more frequently, B items less often, and C items the least.
• Prioritize High-Value Items: Focus on high-value or high-turnover items more frequently. These items can significantly impact your bottom line, so it's crucial to ensure their counts are accurate.
• Close All Transactions Before Counting: To prevent discrepancies, ensure that all transactions related to inventory items are completed before starting the inventory cycle count.
• Use Technology and Automation: Leverage inventory management software, barcode scanners, AI scanning, or RFID technology to streamline the counting process and reduce human error. Integrate automated solutions to enhance accuracy, reduce manual effort, and provide real-time visibility of inventory changes.
• Involve Multiple Team Members: Include various team members from different departments in the counting process to ensure accuracy and accountability.
• Perform Zero Counts: When a bin is emptied by a picking order, have your staff count and confirm that it is empty to verify inventory levels quickly.
• Document Everything: Keep detailed records of the counting process, including any discrepancies and adjustments made, to help with future audits and process improvements.
• Conduct Initial Double Counts: Perform counts twice initially to verify accuracy. Have a supervisor cross-check the counts against the inventory system.
• Review and Adjust Processes Regularly: Continuously evaluate and refine your cycle counting procedures to adapt to changes in your inventory and operations.
• Use a Control Group: Count a small, specific group of items repeatedly over a short period to identify and address any counting errors.
• Perform Investigations When Errors Occur: Investigate and resolve any discrepancies or errors found during the counting process to improve accuracy and reliability.

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Enhance Cycle Count Accuracy with PackageX

Track and manage stock accurately during cycle counts in a much smarter way. Using the inventory management software or mobile app and APIs, you can enable real-time inventory updates. These tools also generate detailed cycle count reports, compare actual counts with system data, and help identify any mismatches. There is not need for a separate cycle count software, as PackageX provides a unified system for integrating various data capture points. They offer visibility into inventory at different levels—organizational, location, and layout—along with real-time counting. The AI scanning functionality allows workers to use mobile devices to quickly and accurately record counts by scanning items during the cycle counting process. Another helpful feature is asset tagging and tracking- it simplifies the management of items, assets, and lots, ensuring efficient tracking and control.

FAQs 

What is an example of a cycle count?

Suppose you have 800 parts in your inventory, and your team can count 25 parts each day. Dividing 800 by 25 gives you 32. Therefore, it will take your team 32 days to count all the parts.

What is the cycle count rule?

The Pareto Principle method, also known as ABC cycle counting, is based on the idea that 20% of the items in a warehouse account for 80% of the sales. These high-impact items are classified as "A" items. In contrast, "B" items make up 30% of the inventory and contribute to 15% of sales. "A" items typically include your fastest-moving or most valuable assets.

How do you calculate cycle count accuracy?

You can calculate it using the following formula:

Inventory accuracy = [counted items / items on record] * 100