Cycle Counting: Why You Should Ditch the End of Year Model in Favor of It

Most companies are dedicated to an inventory management program, which always seems to throw up disparities between their records and what is counted during stock takes. The reasons for this can be speculated—misplaced items, wrongly recorded entries or even stolen goods are all possibilities. It would seem that these disparities are inevitable, however, someone has the responsibility to manage the stock inventory and must be extremely concerned with keeping the margin of error as small as possible.

The annual stock count is carried out in order to compare records of stock by checking them against the items in storage. The hope is that this process will provide evidence that the records match the physical inventory exactly, though this is often not the case. This task often involves suspending normal business activities on hold at a significant cost to the company.

Enter cycle counting, an improved approach to this age old process which works by separating the process of inventory verification over a period of time in order to achieve better efficiency and accuracy. Provided that the company has the correct software all that is needed to employ cycle counting is a little bit of know how, and it’s not even that difficult to understand.

The main concept of cycle counting is that it is an easy process to implement. It has two distinct qualities that make it distinct from current practices. The first is that the verification of stock takes place as part of a continuous process year on year, and the second is the special attention paid to high value items.

The benefits to this model are much greater than the effort that is required during initial implementation—any problems discovered within the inventory during cycle counting can be addressed and corrected more frequently if compared with the annual system. Each cycle count will not take up as much time and limit disruption. Overall, the process provides more accuracy and efficiency through frequent improvement.

Research has been conducted by a number of organizations to extract hard numbers to back up these claims. The University of Arkansas, and place the accuracy of bin location at between 95% and 99% under the new system, with potential efficiency gains of between 5% and 10% available according to research by Tompkins Associates. A study during 2009 by the Aberdeen Group suggests that cycle counting is among 5 characteristics displayed by industry leading performers.

The upheaval experienced when implementing cycle counting is it’s main downside. It requires a re-assignment of tasks from annual to regularly, this might require a new process leaders appointment to oversee the process. The process itself will require careful planning in order to reap the full benefits of the system while not disrupting the day to day running of the business, and a warehousing system which can support the newly implemented cycle counting approach. Master these challenges, and your organization will be well on the way to greater inventory counting efficiency.

This article has been adapted from “Cycle Counting (Part 1): What Every Inventory Manager Should Know About It,” by Adam Bluemner.