If you’re like most businesses, you recently finished up your inventory counts for 2015. This means you’re probably feeling the pain from having to reconcile numbers that were too far off, learning how much cash was tied up in aged inventory, and investing precious overtime pay into dealing with issues related to improper inventory practices.
If you’d like to avoid these issues in the future, it’s imperative that you improve your cycle counting process. Here’s how.
Six Tips for More Efficient and Accurate Cycle Counting
Cycle counting only works well when you employ the proper techniques. Even the best cycle counting strategy is useless without proper attention to detail. Let’s review some helpful tips that will empower you to be more efficient and accurate with your cycle counting efforts in 2016 and beyond.
1. Understand the Theory Behind Cycle Counting
Any time you start leveraging a new business technique, strategy, or approach, it’s of paramount importance to identify the theory behind it so you understand the purpose and desired outcome. This is definitely the case if you adopt cycle counting.
If you don’t understand the “why” behind cycle counting, you’ll never be able to achieve the desired results. Although there are plenty of discussions and explanations of the purpose of cycle counting, few are as good as the description offered by logistics and supply chain expert Martin Murray.
“When a cycle count is performed, there are two inferences that are made,” Murray writes. “The primary inference is that the accuracy of the items in the cycle count can be used to determine the accuracy of the items in the warehouse as a whole.”
“The other inference,” he continues, “is that if an error is found in the cycle count, then that error could be expected to occur for other items in the warehouse.” You must grasp these two concepts if you’re going to make good use of the time you invest in this approach to doing inventory.
2. Recognize the Different Types
It’s also important that you recognize the different types of cycle counting. Let’s take a brief look at three of the most common approaches:
- 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. It uses the 80/20 rule, which says 80 percent of the volume in the warehouse comes from only 20 percent of the SKUs. Under this method, every item is assigned a letter. “A” items account for the top 80 percent of sales, and “B” items account for the next 15 percent. Finally, “C” items represent the final 5 percent of sales. Generally speaking, more than half of your SKUs will be “C” items.
- Control group cycle counting. This method focuses on a small group of items that are counted a number of times across a very short time period. Over time, this repetitive counting uncovers any errors in the count technique. After you correct the errors, the process can be applied across multiple product categories.
- 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 quantity of similar items.
Depending on the structure of your company, the number of different products you have in inventory at any given moment, and the frequency with which you want to count, you may find one of the above approaches more beneficial than the others.
3. Conduct as Many Counts as Possible
The goal of cycle counting is to conduct just the right number of counts to enable you to maintain an accurate assessment of inventory levels without having to invest a tremendous amount of time.
In order to ascertain this sweet spot, you’ll probably need to experiment over the course of several years. In your first year, aim for at least four full cycle counts.
“I recommend developing a 13-week cycle count calendar,” writes Ted Hurlbut, an inventory management specialist. “You should schedule to count everything at least once in that 13-week period, and your faster-turning, higher-volume items and categories two or three times.”
Over time, you’ll figure out whether you need fewer or more cycle counts for an accurate accounting of inventory.
4. Have an Organized Plan
If cycle counting is to be effective for your business, you have to have a fully discussed and well-documented plan. Every business operates under different restrictions and regulations, so you can’t necessarily model your plan after one another company uses, but it’s imperative that you identify an organized strategy that works for you.
For some, this looks like arriving at the warehouse at 6 a.m. every morning, unlocking the doors, cranking up the computers, and cycle counting until 7:30 a.m. For others, it will involve moving lunch back an hour for two employees and asking them to cycle count at noon on Mondays, Wednesdays, and Fridays. Find a plan and stick to it.
5. Budget for Growth
You need to consider growth when you cycle count. As your business scales, so will your inventory levels. Over time, this may require you to alter your plan, hire more employees, or switch up counting techniques. Approach these issues as they come; just recognize that they’re coming.
6. Assign a Full-Time Employee
As a business owner, you need to be committed to cycle counting … but it can’t be your job. You have far too many other responsibilities to worry about. Find a trusted full-time employee to head up cycle counting.
It doesn’t have to be the person’s only job, but it should be a major part of his or her position. This will help your count attain continuity and accuracy.
Contact QStock Inventory Today
At QStock Inventory, we specialize in helping small and large businesses manage inventory efficiently and accurately for maximum profitability and unobstructed insight into critical processes. If you’ve struggled with inventory management in the past, and are looking for a solution that seamlessly integrates with QuickBooks or Intacct, you’ve come to the right place.
If you are currently running Intacct or Quickbooks and would like to schedule a free consultation to see if QStock is right for you, from cycle counting to other parts in the warehouse, as your next potential Warehouse management system, Contact Us Today by filling in the form below. We would love to hear about your business and how QStock can help you achieve your business goals.