The first and foremost aim of every distribution and manufacturing firm is to prevent the manual labour of counting and instead of that use a cycle counting system to keep the inventory numbers up to date. Inventory management, counting tools, as well as inventory software, for instance, the barcode scanner can be a great help in achieving the objectives of the firm.
- What do you mean by cycle counting?
- 6 major benefits of choosing cycle counting over annual inventory counting
- Implementing the cycle counting method
- How does the cycle counting method work?
However, this does not eliminate the counting procedure of the inventories. Several devices can be effectively used to keep the inventory numbers in check daily. You just need to find the right device that will be suitable for your firm. If your inventory is checked regularly, then you can eliminate the monotonous procedure of manual counting.
If you are a business owner of a high developing brand, then it is very likely that you get very little time to interact directly with your customers. Therefore, it is also likely you cannot afford to spend days in inventory counting or checking for any discrepancy. There are various advantages of the cycle counting method depending upon how popular your brand is. All you need is a proper system to implement all the advantages of the method.
What do you mean by cycle counting?
Cycle counting is an effective process that validates the accuracy of the inventory counts of a firm in the ERP or their accounting system by counting the inventories regularly. You can choose the cycle daily or every week, whatever suits your firm. If you install the system of cycle counting in the firm, then your inventories will be kept up to date, as it will be counted several times a year.
It is an auditing process for your inventories, which goes on throughout the entire year permitting you to focus on the subsets of the inventories. Cycle counting is way more efficient than annual counts and is less disruptive to daily business operations. Cycle counting helps in proper production execution and inventory accuracy. It also tailors the focus on important items that have a higher value, those which are critical to the business, or those with higher mobility volumes.
6 major benefits of choosing cycle counting over annual inventory counting
Cycle counting is way better than annual counting in every possible aspect. Let us discuss some of the pointers of the Benefits of cycle counting over Annual inventory counts:
Operations have less disruption
The primary benefit of using cycle counting is that you do not need to disrupt your regular operations to perform manual counting. In annual inventory counting, the firm needs to be shut down for some time so that the inventory counting could be done. If your company shuts down the regular operations of the firm, then it can be quite expensive for the firm to sustain that. If the cycle counts are integrated into your systems as a weekly routine, you will automatically face lesser discrepancies in your business. In the case of inventory counts, an entire day is allotted for counting the inventory. This can lead to huge losses for a company. Whereas in cycle counting, you can assess your inventory counts on an ongoing basis. This not only allows minimal disruption but also keeps ongoing communication among the team members.
The cycle counting methods provide plenty of spare time in between each count, and so this time can be used to fix any other errors that might have taken place in the operations. However if by any circumstances the inventories are not accounted for exact numbers, it is way easier to identify errors with the cycle counting method than by the annual counting method. Using the cycle counting method also increases the accuracy of the number of inventories that are counted, because you are less likely to make any error while using the cycle counting method for counting the smaller amount of inventories. As you are shortening the period between each count, you are automatically decreasing the time an error could sustain in the operations. If you have an incorrect inventory account, waiting for months for the recovery of the same can cost you a lot of money and a lot of issues with your customers themselves. Therefore, using a cycle counting method can help you catch mistakes faster. This will help in the effective running of the business operations where you will know exactly when to send the purchase orders.
Better buying decisions
With the cycle counting method, the counting process takes place regularly. As you will be assessing your inventory counts regularly, you will have a better hold of the inventory subsets. Therefore, the buying decisions you will make for your firm will be way informative and profit-oriented. The cycle counting helps your firm to create a better report for your team as it helps you to restock the items on time without any inconvenience put forth.
When you are implementing a cycle counting method in your operations, you are forced to assess your inventories regularly. Having regular check-ins and updates on the inventory subsets helps you to make more targeted and focused buying decisions. The primary benefit of cycle counting is that it helps in deciphering items holding higher value and needs to be stocked more. Several cycle counting methods can be implemented. However, there is this one method that works for every brand that is categorizing inventories in three specific groups:
- A: The items in this category fall under the best-seller segment. These items are counted often and have to be restocked frequently. They do not take much time in movement, and therefore they do not sit in the warehouse for long.
- B: These items are also counted often within a year, but not as frequent as the A listed items. These items are sold quite regularly, but they take longer to move from the warehouse and therefore cost the company more holding costs.
- C: These items are not counted frequently. These items do not sell regularly and take the longest time to move from the warehouse and therefore costs you the highest holding cost.
Save resources and time
Using manual labour or the annual inventory count method can be very critical and messy. It might be time-consuming and prone to errors. Moreover, if there is any default or error in the counting results, finding the same error can be a very difficult and monotonous process. Therefore, you must use the cycle counting method for counting inventories in your firm to avoid wastage of time and resources.
Better customer service
When you are well informed about all your data and stocks, you will know the exact number of available products and those that are needed to be restocked. Therefore, when a customer places an order, you can easily facilitate faster delivery. Quick and hassle-free deliveries attract more and more customers.
It is a known fact that if your clients are happy and satisfied with your products and services, they are bound to recommend them to their loved ones, resulting in increased sales in your firm. This is an indirect process of increasing your sales.
Implementing the cycle counting method
When it comes to inventory, it can be one of the most frustrating parts of a product-based company. If you are implementing minimum cycle counts, it helps your businesses to see the accuracy of the inventory counts as a vital part of the entire business operations. This improves the buying decisions that you make for your business. The main purpose of implementing cycle count is to have the exact reflection of inventory in your warehouse. If your brand is opting for manual counts, there is a hundred per cent chance the counts are not accurate. It is easier to count inventory lots in smaller chunks. This not only increases the accuracy of the inventory but also helps in serving your customers better.
The above-mentioned benefits are enough to include in your firm. It will not help you in your inventory counting process but also help you increase the profit margins of the firm. It is high time that you exclude the annual inventory methods and brings in the cycle counting method in force to ensure optimal management of the inventory. Here are some elements that you need to keep in mind before you dive into the cycle counting method plans:
- To enforce the cycle counting method in your firm, you must include it in the daily or weekly routines of your firm. Many companies that include the method tend to fail anyway because they do not consider counting the inventory that often. If you are relying on sporadic counts, then it is obvious that you are going to get some sporadic results. Thus, this method is effective only when you consider counting your inventories on a regular or weekly basis.
- The next important thing that you need to maintain is a schedule for the counting process. Every company is different, so you must identify the perfect schedule that suits your business operations. However, a weekly schedule of 13 weeks counting calendar is recommended. This means that every item in your warehouse will be counted on a cycle of 13 weeks.
- The last and most important aspect is to prepare a plan before implementing the actual process. Preparation is very important to ensure that the process will work and generate positive results. Make sure that the inventory is properly organized in the warehouse and you have a proper plan that you can execute for authentic counting of the inventories.
How does the cycle counting method work?
The cycle counting method has many important variables that are to be taken into consideration:
The team capacity
Many cycle counters are employed in the firm due to the stock values and reduced write-offs.
Scope of counting
The number of inventory that will be counted is analyzed. Then it is decided how much will be counted annually or weekly and how that will be affecting the trading business.
The higher the value of the item will be the higher will be its accuracy of counting. This will also help in identifying any mismanagement as quickly as possible.
Here the warehouse location is considered. The most frequent and bulkier items should be placed closer to the doorways. However, this will put these same items at a higher risk and therefore a higher stock quantity is necessary.
Many cycle counting methodologies can be used as per the organizational requirement. However, the following three steps are the most effective way to develop a proper organizational system:
- Control group method of cycle counting: A small number of items are counted several times in a row within a short period. This repetitive counting unveils any mistakes or errors in the counting process. After these mistakes are resolved, the process can be applied in multiple places to various product categories.
- Arbitrary sample method: In this approach of the cycle counting method, random items are selected periodically. This approach is mostly implemented in several warehouses containing a large number of the same items. This will also check the accuracy of the process and identify errors.
- ABC analysis: This is the most common approach for analyzing inventory counts. A lot of prep goes into the process where the items are categorized into three subsections that are A, B, and C. The primary focus is put on the A-listed items that hold the highest stock value and has the fastest mobility pace. The least focus is put in C listed items that have lower stock values and have the slowest mobility pace. This is one of the classic and popular methods for organizing your inventories.
The stated benefits are way too convincing to any business to opt cycle counting over the regular annual counting. The benefits will nudge you to choose the cycle counting method. Cycle counting will not only help in your inventory counting but will also help your firm grow and develop. Cycle counting can save you plenty of time and resources. You should opt for the method to increase your profit margins considerably.