Inventory Control

How to perform an inventory cycle count

A woman conducts inventory counts in a warehouse.

Inventory cycle counts are a mainstay of inventory audits. During an inventory cycle count, employees count a small and specific amount of inventory on a given, recurrent day. This allows businesses to keep tabs on their inventory without having to count everything all at once. In this article, we’ll reveal how to perform an inventory cycle count. (And, of course, a whole lot more!)

Definition of inventory cycle count

Inventory cycle counting is the practice of counting specific subsets of inventory at regular intervals. Also known as a cycle count or cycle counting, an inventory count is a popular way to manage physical inventory and determine inventory value.

During cycle counting, your business will ensure that stock levels are as expected. A cycle count is an important sampling technique in which certain items are counted, instead of an entire inventory. Some businesses count their whole inventory little by little using cycle counting. Other businesses never count everything, instead focusing only on their most valuable items. Other businesses count only sporadically, just to ensure everything is as it should be.

Related: What is the purpose of cycle counting?

Inventory cycle counting is both an art and a science, and you and your team will get better at conducting these counts over time. When it comes to inventory cycle counts, what’s most important is accurate, consistent and properly-recorded counts of your most essential inventory.

Best practices for an accurate, reliable inventory count

No two businesses are quite alike, so there’s no one-size-fits-all method for inventory cycle counting. How often your company conducts inventory counts depends on the number of items stocked, the accuracy and efficiency of the team, and how much high-value inventory you carry.

Whether you stock auto parts or aspirin, these tips and tricks can help improve the accuracy and reliability of your inventory counts.

Count when it matters most

Cycle counts are important because they protect against inventory loss. Since the best offense is a good defense, ensure you give the right inventory enough attention when it matters most. For example, if you’re an auto repair shop, you’ll want to count your windshield wipers with a little more intensity during the rainy season.

Count what matters most, too

While all your inventory is important, some stock is more valuable or essential than other stock. Determine what inventory is your bread and butter, then resolve to never run out of it. Inventory counts help you keep tabs on your most valuable stuff, so schedule them regularly and find a secure place, like inventory software, to track the data.

Put your best employees on the job

Because physical inventory cycle counts are performed by real people, human error is to be expected. To combat this, assign high-value cycle counting to your most efficient, reliable and thorough employees. After all, you want cycle counts performed quickly and accurately! Otherwise, you’re just going to redo them anyway.

Stick to one category

While it can be tempting to conduct several cycle counts at once, most companies benefit more from counting just one group of things at a time. By reducing the number of items your team needs to count, you support more accurate cycle counting. Plus, employees who’ve got other responsibilities will still get their other work done, without affecting your operation’s productivity or your customers’ satisfaction.

Schedule counts recurrently–or not

Some businesses, sadly, do deal with shrinkage, otherwise known as inventory loss or theft. While cycle counting is traditionally performed on a recurrent, regularly-scheduled basis, some companies choose to count more randomly to discourage fudged numbers.

Why ABC analysis helps with cycle counting

ABC analysis is a popular and effective way to valuate and categorize your inventory. If your business simply lacks the manpower to count all its inventory, ABC analysis can help you identify your most essential and profitable inventory. Then, you can just focus on practicing tight inventory management of that super important, profitable stuff!

A coffee shop employee takes inventory using a tablet.

What is ABC analysis, anyway?

ABC analysis is a tried-and-true inventory categorization strategy where inventory is divided into 3 categories, A, B, and C. Category A receives tedious, detailed auditing and tracking, category B receives somewhat detailed attention, and category C receives even less time and attention.

To perform this technique, simply categorize your entire inventory into three groups:

  • Category A: These items account for 20% of your inventory, but 70% of consumed inventory value.
  • Category B: This group of items accounts for 25% of your inventory, but 25% of consumed inventory value.
  • Category C: This final group of items accounts for 50% of your inventory, but only 5% of consumed value.

How to use ABC analysis when cycle counting

Once you identify what inventory matters most, you can streamline your inventory cycle counts by prioritizing Category A items. You should also give time and attention to Category B items, but not nearly as much. Category C, too, should receive a little attention if possible. But if something has to slip through the cracks, make sure it’s Category C stuff!

This categorization method helps both large and small business figure out where to apply their inventory management resources. In summation, Category A inventory should be counted more frequently.

Worth noting: ABC categorization is quite similar to the Pareto principle. Used across many businesses, the Pareto principle (or the law of the vital few) suggests that 80% of effects come from 20% of causes. In inventory management, the principle applies to profits and stock.

How to conduct inventory counts

Now that you’ve determined which inventory requires the most attention, you can cycle count your physical inventory using inventory management best practices. Here’s a step-by-step process we recommend you follow. Of course, you may need to alter some of these steps to better suit your business.

  1. Create a schedule for inventory cycle counts, then stick with the plan.
  2. Order more than enough count tags, each sequentially numbered, so you can more accurately count your inventory.
  3. Preview your inventory! Know what you’re getting yourself into before you begin. If things are a mess, have an employee organize them.
  4. Pause any warehouse action! During a count, nothing should be removed or restocked.
  5. Have a clear inventory count procedure posted, so there’s no confusion about the process.
  6. Break counters up into teams, if necessary.
  7. Distribute count tags, issuing them to the correct teams.
  8. Clarify where each team should count, if necessary.
  9. Count inventory! Usually, one team member physically counts stock in a specific bin location, while the next person records all findings on a count tag. You can decide what information needs to be recorded on a count tag. Usually, it’s item name, bin location, item description, quantity and unit of measure.
  10. Transfer count tag data onto an inventory management system, like the Sortly app.

If, after your inventory cycle count, you find any strange results, you’ll want to investigate further. Sometimes, that means a recount. If you use an inventory management system to track inventory, you might be able to resolve discrepancies by reviewing item histories.

Alternatives to inventory cycle counts

If conducting physical counts of your inventory sounds next-to-impossible, you might want to try another inventory technique: perpetual inventory! Perpetual inventory requires continuously tracking items as they are added or subtracted from inventory. But don’t worry, it’s way less work than you think.

Related: What is the difference between perpetual inventory and physical inventory?

The easiest way to maintain perpetual inventory? Inventory software, like an app! Modern, intuitive apps like Sortly make real-time inventory tracking a breeze.

Sortly inventory management software works on tablets, desktops and smartphones

Counting inventory using an app

The right inventory app will offer tons of key features that make the most challenging aspects of inventory management easy. Look for automation features like barcode and QR code scanning, customized alerts and easy-to-generate reports for best results.

Here’s how each of these features can save you tons of time, money and stress:

Barcode & QR code scanning

Barcode scanning and QR code scanning automate many inventory management processes. From checking items in and out, quickly updating inventory counts, and instantly learning more about a product, the time-saving value of barcode and QR code scanning is significant!

Plus, barcode and QR code scanning drastically reduce human error. Data entry mistakes, misread UPCs, or bungling serial numbers or sound-alike product names happen. But QR codes and barcodes virtually eliminate this risk!

Best of all, your phone or tablet is all you need to scan codes! No expensive, easily-breakable equipment required.

Customized alerts

Inventory cycle counts only tell you how much you’ve got once you’ve counted. But with perpetual inventory, you can receive an alert the minute an item’s stock is dwindling, approaching expiration or warranty end. Knowing this information before it’s too late can save you time, money and stress.

Insightful reports

Finally, inventory management software helps you create a record of your past inventory. This offers an in-depth look at how you use your inventory over time. By generating customized reports about the items your business uses, you can better understand what you had, how much you used, and how much became costly dead stock.

You can also rely on item histories to account for any inventory loss or unexplained discrepancies in your store, storage closet or warehouse.

Try Sortly’s Inventory App Today

Looking for an easier, faster way to track all your inventory? Try Sortly’s inventory app, absolutely free.