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Audits are crucial for inventory that runs efficiently. Ensuring the physical inventory to match the recorded data is crucial for maintaining accurate information throughout the entire logistics process. As businesses expand and broaden their product range, the effectiveness of traditional quarterly “all-hands-on-deck” audits diminishes. Now, there are multiple systems that help large organisations to account for their goods. Among that, inventory cycle count is the most popular system. In this blog, let us learn more about cycle counting in detail.
Inventory cycle counting is a popular inventory strategy to determine the way to keep track of inventory that spreads out the work of counting products over time, instead of doing it all at once like in regular audits. This scheduling indicates when each portion of the goods will be counted.
This cycle counting system is best suitable for large companies with big inventories or businesses with many versatile products.
We have learned about the cycle inventory and let us move on to learn its benefits. So, how does this complex method benefit than to normally count the inventory physically?
If your business is small, halting warehouse operations will be a bad idea as it can cause bottlenecks by piling up a few orders. This will impact the customers getting frustrated. If your business is large, shutting down warehouse operations is a disaster. It can impact the financials of your business. In this case, conducting a physical audit of your inventory is useless.
In addition, the physical audits need completely shut down to audit and count the inventory. Only then, data can be reconciled and the inventory can be counted accurately. A cycle count is much required for large businesses with huge warehouses. Due to the specific tasks employees have, they can carry out cycle counts during regular business hours.
With this cycle counting system, managers don’t have to bother counters to count the entire warehouse. They can focus on one subset. This system will be less hassle for the warehouse employees.
A well-structured physical audit is clear-cut. However, all the warehouse operations have to be shut down, employees efforts have to be halted and the products have to be completely counted. So, if in a fast-paced business environment, this type of inventory management is not flexible as every second is valuable and is counted.
Contrariwise, there are more than six variations of inventory cycle counting, each tailored to meet specific business objectives. With inventory cycle counting, managers can customise and specify the items to count, who counts and when they are counted. These different approaches ultimately lead to increased precision, effectiveness and they provide crucial support for day-to-day operations.
Every audit is inaccurate. Errors and shrinkage in the warehouse will remain. Unfortunately for any company, warehouse employees are capable of fiddling with the counts to cover up theft or fraud. To clarify here, inventory cycle counting does not mean that the employees will be counting the products together. The cycle inventory is a robust alternative to the traditional methods.
Most organizations don’t entirely replace their physical audits. Instead, they complement traditional yearly or twice-yearly audits with more frequent inventory cycle counts, which can occur on a monthly or even weekly basis.
The company can’t rely on human data entirely as it is not 100% accurate. Relying on cycle inventory count will help in acquiring almost close enough inventory data.
This cycle counting is best when it comes to rendering accurate accounting. Further, it has diagnostic tools which can disclose inefficiencies in the warehouse operations. To better understand, this method helps to randomly shuffle counters and it helps in isolating the problematic counters which give inaccurate numbers.
In addition, common inventory problems such as stockouts can be easily identified by the stakeholders. As a result, warehouse managers can order more products in advance before getting a negative review from the customer.
Let us look at some of the common methods of inventory cycle counting.
This cycle counting type provides priority to the high-value goods. It is a significant method for warehouses with product types of varying value. This concept is based on the 80/20 rule, which is also known as the Pareto principle. This rule means that 20% of your inventory products will contribute to 80% of your profits.
This method divides the products depending on the value of the goods. The high-value goods are classified under the A category. The low-value and mid-tier goods are categorised under C and B. Later, the warehouse managers favour the high-value goods. In that case, for category A, managers may schedule the cycle counting weekly, for B it may be scheduled monthly and for category C, it will be scheduled quarterly.
Inventory variance occurs when an item is exchanged via a manufacturer, distributor, or to the customer finally. This counting approach addresses the issue by giving precedence to products that are accessed most frequently. “Accessed” encompasses actions such as being processed into or out of the warehouse, or being physically handled in any manner.
This cycle counting type is a blend of user-based and ABC accounting methods. It is used to prioritize high-value goods which are accessed more. Further, this cycle count is applicable if the ABC categories are unwieldy level. The organization’s bottom line is most adversely affected by inventory discrepancies in these specific products. Consequently, it stands to reason that leaders would prioritize precise counts within this category.
In this cycle counting method, the products are counted in a specific physical space. By combining this tactic with the use of random counters at irregular intervals, it becomes possible to pinpoint troublesome areas, such as instances of theft or obsolescence.
In this cycle count method, the counting of the products is done at a particular stage in the logistic pipeline. Given below are some examples.
At the reorder point, counting products is done. When the inventory level dips, the product counting is done. This type is the most effective in identifying inefficiencies. Hence, when a product is counted multiple times throughout the lifecycle will help in identifying errors and rectifying them. These errors can be isolated in their respective stages such as ingest processing, reordering etc.
Also Read : What is Inventory Cost? – Types and Examples
If you are interested in setting up inventory cycle counting for your business, here are some of the effective practices.
We have learned in this blog that inventory cycle counting is superior to traditional audits. A cycle counting system is a chore which will help you to achieve a level of accuracy and will help in eliminating logistics issues.
Theft of products in the inventory is a serious issue. A study revealed that 40% of warehouse employees proposed the delivery drivers to commit theft. Comparatively, in the traditional auditing system, employees are involved in the counting of the products which enables some employees to tamper with the counting. Alter the staff randomly to avoid theft of goods.
Leverage technology for accuracy and faster cycle inventory. Inventory management software is an advanced solution to manage end-to-end operations of the inventory. Plus, it helps in storing, analysing and reconciling inventory data. Another beneficial technology to manage cycle count is using barcode scanning systems to speed up the task and to identify errors.
Also Read : What are Inventory valuation methods and their importance?
Counting a small portion of your inventory in a period of time is known as cycle counting. You have the option to conduct cycle counting as an alternative to conducting full-scale physical inventories. Alternatively, you can employ both methods concurrently to cross-verify inventory quantities and values.
Inventory cycle time is the time taken to produce and deliver an order from the time a customer places an order. It is measured in days and the speed is measured here. The speed at which a company manufactures the product and delivers it to the customer. However, the concept of inventory cycle time is different to different companies. The best example of inventory cycle time, the retailer or distributor measures how soon the inventory is sold.
Cycle inventory is also known as cycle stock inventory. Cycle inventory refers to the assortment of products, materials, or raw ingredients that a company maintains to meet its minimal production requirements. It holds paramount importance in the company’s operations, as routine business activities consistently utilize or “cycle through” this inventory.
Inventory Cycle Count is the most standardised approach to managing inventory products. It reconciles inventory data of large warehouses. This method will not interrupt the daily functions of the inventory. It analyses inefficiencies and errors at every stage. This is a more reliable method than the traditional audit. We also learned about cycle inventory, cycle counting and inventory cycle time briefly.
ERP software is also an efficient solution for managing inventory cycle counting accurately. It is the best software to manage all the processes of the business.
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