Did you have to close out last year with a year-end physical or annual inventory count? Maybe you found yourself saying something like “never again!”
Would you really like to follow through with that vow and avoid going through the same pain and frustration next December? What you need to do is to ditch periodic inventory and move to a perpetual inventory system.
The Benefits of Switching to Cycle Counting
Perpetual inventory, also referred to as cycle counting, is the answer to all your inventory woes. Ok, maybe not all of them, but a lot of them. If you’ve ever wondered how massive retailers keep their inventories straight, the answer is they don’t bother to do full physical inventory checks. More likely, they’re cycle counting.
“In fact, they almost never shut down for a full physical inventory,” writes Ted Hurlbut, an inventory management expert. “It’s simply too expensive to be closed for even a day. Instead, they are always cycle counting, always counting something.”
What is cycle counting and what makes it a more painless method of doing inventory? Basically, cycle counting entails performing a continual count, and tracking a portion of your inventory all the time so every item in your warehouse(s) gets counted at least a couple of times per year.
Compare this to periodic inventory counts, which require an all-hands-on-deck approach for a brief but intense period at the end of the calendar year. Depending on the amount of inventory you have and how your systems are set up, you may enjoy the following benefits if you switch from periodic to perpetual inventory counting.
It’s nearly impossible to scale your business if you don’t have a clear understanding of inventory levels. How can you grow if you don’t have product to sell? When you use a periodic inventory system, it’s easy to lose track of where you are and difficult to replenish quickly. However, when you switch to cycle counting, enhanced visibility easily leads to more frequent replenishment.
Organizational Efficiency and Accountability
When you count inventory on a regular basis, it fundamentally changes the way your organization is managed. Employees know that inventory must always be organized, properly displayed, and accounted for. This leads to greater efficiency and tends to encourage employees to stay honest and in line. Though it may be only a small component of your daily operations, switching to cycle counting can have profound effects.
Confidence in Sales and Marketing
“Nothing erodes customer service more than salespeople who don’t trust the inventory in the system,” says Hurlbut. “When the information is wrong, and the needed re-orders aren’t coming in when they’re needed, it’s very difficult for even the most skilled salespeople to present a confident, positive face to the customer.” In other words, cycle counting empowers salespeople to do their job better by giving them the confidence they need to make effective pitches.
Four Tips for Implementing a Cycle Count System
Transitioning from a periodic inventory system to a perpetual inventory system requires a concerted effort. Here are four basic tips for an effective implementation process:
- Everyone Must Get On Board – If you want your transition to go smoothly, you’ll need to include everyone, from warehouse personnel to accounting. There can’t be any gaps in procedure. Cycle counting has to become a regular part of the entire team’s daily/weekly routine.
- Set a Rigid Schedule – The best way to remain accountable and on track is to design a rigid schedule. Hurlbut suggests using a 13-week cycle count calendar (which allows you to conduct four counts per year). After the first year, you may choose to go with fewer or more frequent counts.
- Start with Smaller SKUs – The problem many businesses run into when they make the initial switch to cycle counting is moving too fast. It’s not a good idea to start with your best-selling SKUs. Instead, begin with the smaller products that involve less movement and turnover. This will enable your team to learn the ropes and build their confidence.
- Close Out Open Inventory Transactions – As is the case with full physical inventory counts, you have to close out any open transactions in a given product category before you begin to count it. This means you need to complete all restocking from overstock, backstock, or understock. Open transactions make reconciliation incredibly difficult on the back end.
Looking at the Cost of Annual vs. Cycle Counting
When you compare annual inventory counting versus cycle counting, the biggest concern most business owners have is the cost of switching from one to the other. The usual reason is that most companies assume they have to hire a full-time cycle counter to make it work.
This simply isn’t the case for most firms. Depending on your inventory levels, one or two employees with some counting experience may be sufficient. Even if you do have to hire a full-time cycle counter, it may still be smart to make the switch.
According to Edward Blackburn of RBB Systems, it can be instructive to ask yourself the following questions:
- How much did that three to five days of counting cost in hourly labor? How many employees were involved?
- How many mistakes will need to be fixed right after the annual inventory?
- How much product could have gone through my shop in that time frame?
- What was the cost of having the operations shut down during the inventory process?
- How many customers were inconvenienced?
If you can answer these questions, there’s a strong chance you’ll come to the conclusion that the cost of a perpetual inventory system — even if it means hiring another employee — is cheaper than the old method of annual inventory counting.
Contact QStock Inventory Today
If you’re like most other businesses, maintaining inventory level visibility is a struggle. And this lack of confidence often results in back orders, out-of-stock SKUs, and lost profits. Sound familiar?
At QStock Inventory, we specialize in providing powerful warehouse management solutions for inventory control in growing businesses. With our solutions, you’re able to choose an inventory counting method that works best for you.
In most cases, this will be a cycle counting system that allows for real-time insights. If you would like to schedule a free consultation to see if QStock is right for you, 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.