Inventory management is an important step that contributes significantly towards the success of the business. It ensures the seamless flow of the business activity enabling to carry out all retailing as well as manufacturing operations skillfully and for that, the estimation of the inventory is exceptionally crucial. There are many inventory counting methods, one of which is cycle counting. The purpose of cycle counting is to remove any kind of bottlenecks from the business.
Inventory management is by itself a complex system that encompasses the areas of:
- Estimation of reorder points
- Fixation of reorder points
- Determination of price-levels
- The smooth flowing of distribution channels
- Tracking of storage
It is essential in this case that you know about methods of verifying stocks before knowing more about cycle counting:
- Annual stocktaking: Holding the entire facility to halt and counting the total inventory once in every year.
- Periodic stocktaking: Monthly, weekly, or quarterly counting of stock in the warehouse
- Cycle count: Counting the inventory of a specific section at a time throughout the year.
Cycle counting: A deep dive into an unparalleled method of stock counting
In this method, the inventories are selected randomly or any pre-defined criteria for a specific location of a particular item and then checked daily. The selection is done manually or determined through the enterprise resource planner or ERP installed in the company. There are mainly two cycle counting methods that are primarily used by companies today:
- Pareto principle: Here, the stock units are segmented into non-significant & significant ones. The significant units comprise of 20% of the stock that generate 80% of sales whereas the non-significant ones rake in 20% of the revenue and consist of 80% of inventory. These parts are supplies, minor & spare parts consumables and many such things.
- ABC analysis: Inventory in this analysis is classified into three main groups of A, B & C as per the revenue generation they make. For example:
- Group A: Comprises of 20% of the inventory and contributes 80% of revenue
- Group B: Forms 30% of the inventory and makes 15% of revenue
- Group C: Forms 50% of the inventory and provides only 5% of sales
When the ABC analysis method of cycle counting is adopted, the items of Group A will be checked frequently against the ones of Group C. This, although, does not reduce the importance of Group C items as their unavailability may disrupt the line of inventory assemble.
Advantages of cycle counting: How your business gets streamlined
- It makes planning and implementing easy. The primary requisites of this step are to figure out store locations and inventory classification and after that, the implementing steps can be done quickly with little time.
- The counting never halts the free flow of the business as it is carried out regularly before the regular work hours.
- The counting system provides an accurate picture of the stock levels compared to that of the system. The detection of any error and generation of cycle count report is also quicker.
- Since the area covered in the counting is small, the process is extremely economical and incorporates lesser human involvement.
- Keeps the inventory staff informed and alerted through real-time notifications.
- Highlights quickly any difference of stock and physical records so the reorder points are adjusted accordingly.
How to count inventory in a warehouse with the cycle count audit?
With the benefits offered by the cycle count system, the best results can only be extracted when the following points are ensured by the venture:
- Detailed documentation of the stock valuation and its areas.
- Checking of the outstanding balances of stock and clearing them before the evaluation of new ones.
- Should be conducted frequently to cover the stock of the entire warehouse.
- The person responsible for conducting inventory management with the cycle analysis exclusive to the post.
- As soon as any error is detected, a trained staff should immediately work out to correct it and prevent from its re-occurrence.
- The segmented areas are to be inspected thoroughly and the information should not at all be disclosed before the analysis; otherwise, any discrepancy may take place.
Cycle Counting with ERP
- Determining the stock valuation and the store requisites
- Determining the daily inspection routine
- Clearing of any outstanding figures before the enrolment of new ones
- Preparing a list of inventories as per accounting records
- Assigning individual duties to carry out stocktaking
- Matching the physical SKUs with the ones in accounting records
- Carrying on with the preset determined schedule and timely finishing the verification of stock in the entire warehouse
The process of cycle audit of inventory disrupts the daily operation of warehouse and business. It ensures the real-time stock to be at the required level that enables the smooth function of the business. The continuous monitoring and documenting of stock allows the venture to never get out of it and also improve the movement of the of the items. The best way to conduct the cycle audit effectively, a venture has to install the best ERP solution to get the desired result in analysis.