Complete Guide to Inventory Cycle Counting Best Practices
- Cycle counting is a core inventory control practice for maintaining stock accuracy.
- A consistent schedule and method help teams reduce recounts and avoid unnecessary disruption.
- Mobile barcoding can speed up cycle counts and keep inventory records aligned with the ERP.
If you handle inventory, then you’re familiar with counting items. Cycle counting is an efficient best practice to validate stock levels. It’s also a seemingly endless task, taking staff, time, and productivity away from valuable warehouse activities. So why do it?
Cycle counting re-affirms accuracy, making it a critical component of your warehouse hygiene. Maximum accuracy is needed to drive visibility, forecasting, and overall warehouse logistics, all of which impact the bottom line. An effective cycle counting strategy protects the availability of stock, prevents cost overruns, and ensures orders are delivered on time.
Meanwhile, wrong count levels hold back your entire inventory operation. Manual cycle counting does little to help. Digital transformation with mobile technology can change that, turning a perceived time-waster into a true value-add while drastically less effort.
Physical Inventory Counting vs. Cycle Counting
Two common approaches to inventory counting are physical inventory counts and cycle counting.
Physical counting involves a comprehensive top-to-bottom counting of all inventory on-hand. Often, operations must halt while this occurs. Physical counts can require significant labor and create more opportunities for counting errors. In larger warehouses, performing physical counts more than once per year may not be feasible.
Cycle counting is a scaled-down, ongoing inventory audit. Businesses may use it as an alternative or in addition to physical counts. Though efficient and beneficial, the procedures can be complex and difficult to manage if done by hand. Automation software can greatly simplify the process and reduce operational burden. Unlike a full physical inventory, cycle counting spreads counting activity across the year, allowing teams to verify smaller groups of inventory without requiring a facility-wide count all at once.
Why Cycle Counting Supports Inventory Accuracy
Cycle counting takes time, but it supports two important outcomes: accurate inventory records and more reliable warehouse execution.
Accurate inventory records support reliable accounting, inventory valuation, forecasting, and planning.
Efficiency requires inventory best practices and the right tools to achieve it, such as mobile inventory software.
Cycle counting is an integral part of inventory control, ensuring stock levels are correct and operations don’t run into any barriers, like unexpected stock-outs or insufficient raw materials to fulfill a manufacturing order. Counts also help you identify areas for cost savings, such as undersells and deadstock.
Cycle Counting Methods
Different cycle counting methods fit different inventory profiles and operational priorities. The most common include:
ABC Analysis (Pareto Principle Method)
ABC analysis cycle counting uses the Pareto Principle method to prioritize inventory into three tiers by the level of importance:
Category A items are your most important inventory. These are low-quantity, high-value items that move the fastest. Category A inventory should be counted most frequently. “A” stock is 20% of your inventory but accounts for 80% of sales.
Category B is second priority, containing mid-level quantity, value, speed, and counting frequency. “B” items may compose 30% of stock but 15% of sales.
Category C consists of high-quantity, low-value items with the lowest level of count priority. “C” materials can account for 50% of your total inventory but just 5% or less of sales.
Variants to this technique include usage-based ABC analysis and hybrid ABC analysis.
Process Control Cycle Counting
In this technique, inventory counters perform cycle counts on SKUs with known discrepancies. Many businesses find process control group cycling both targeted and effective. Workers usually know where warehouse trouble spots are, so empowering them to solve accuracy issues with process control cycle counting can generate positive results.
Mobile inventory software can uncover additional inaccuracies in real-time, allowing managers to use analytics to target high-value areas.
Opportunity-Based Cycle Counting
Opportunity-based cycle counting targets key checkpoints during inventory workflows. Checkpoints can be determined by setting decision parameters for certain processes, such as:
- Re-ordering
- Put away
- Replenishment
- Stock level dips below a designated threshold
With the aid of software, thresholds can automatically trigger alerts and assign tasks.
High-Usage Cycle Counting
As with ABC analysis, in the high-usage methodology cycle counts are performed most frequently on inventory with the highest turns. Value is also a factor. Expensive inventory with rapid turnover takes the highest priority in this method.
Control Group Cycle Counting
Using a control group as a reference point is informative. Cycle counting is no different. In this method, control groups are cycle counted multiple times over a specific period of time. Close scrutiny of a control group helps identify issues in counting methodology, as well as basics like stock levels, labels, ordering, and replenishment.
An inventory management system that performs cycle counts can eliminate many of these issues, especially those caused by manual processes.
Random Cycle Counting
Random cycle counting, also called “random sample cycle counting,” enables you to count a “sample” amount of a certain item type at random. The idea is that random checks periodically audit inventory control practices and stock levels without disrupting daily operations. Amazon is well-known for its random pick-and-putaway inventory system, which includes a form of random cycle counting.
A common variant, known as “diminished population counting,” involves excluding counted items from future cycle counts until the entire inventory has been validated.
Cycle Counting Best Practices
1. Develop a schedule
Planning is key to cycle counting effectiveness. Start by developing a regular schedule for counting inventory. Your schedule may include regular or daily cycle counts as well as an annual full physical inventory of the entire warehouse. Regardless of what technique(s) you use, it’s crucial to stick to the schedule and dedicate sufficient working hours to complete the task.
2. Preview inventory
Before jumping into cycle counting, organize your stock and check the current levels on-hand in your ERP system. This will save time and effort. If you’re using mobile apps for cycle counts, lookups for on-hand inventory are as simple as a quick barcode scan.
3. Pause warehouse activity
During a cycle count, no materials should be moved, picked, or restocked in that area of the warehouse. WIP transactions must be closed out. Otherwise, new inventory counts will be inaccurate or void. It may seem like a helpful shortcut to keep the warehouse running at maximum productivity while doing cycle counts, but in the end, it wastes more resources than it saves.
Mobile cycle counting apps can prevent changes to stock levels while drastically reducing operational pauses to a minimum.
4. Create an inventory count procedure
In addition to a schedule, you will need a clear process for exactly how and where cycle counts will be performed. The process should be shared with the warehouse team responsible for counts to avoid confusion or missteps. Include periodic feedback loops to identify areas for improvement in the counting process. Make the cycle count procedure easy for workers to access. Consider using mobile barcoding software to standardize the cycle counting workflow and reduce manual data entry.
5. Set clear teams
Depending on the size of your warehouse, you may need to sort the inventory counters into dedicated teams. Two or three team members can cover more ground than one. Best practices also recommend alternating which staff does the counting. Special training may be required. Using mobile barcode scanners for cycle counts can help reduce training time, counting bias, and the number of staff needed.
6. Distribute count tags
Some operations use printed tags for cyclic counts. Assign or distribute tags to each inventory cycle counter to ensure all scheduled SKUs get touched. If you are using a double-counting method, then each tag should show two counts—the initial count by team A, and the recount by team B.
Certain ERP software systems like Oracle JD Edwards and Microsoft D365 have inventory tag counting baked-in to default functionality. Extending tag counting capabilities with mobile technology can make the process highly efficient and paper-free.
7. Count inventory
Now it’s time to count your inventory. Pair team members together so that one person physically counts items in a specific bin while a second records the values on the printed count tag. Workers will collect data points such as bin location, item name, item number, quantity, and size. Unexpected or mismatched results should be investigated and the issue corrected. Often, a simple recount solves the problem.
Regardless of what method you use, ensure counters are not distracted or pulled away for other tasks. Multi-tasking only increases the opportunity for mistakes and miscounts. Using mobile apps for inventory count procedures can greatly simplify the process.
8. Transfer count tag data
If you’re using printed count tags, recorded information must then be transferred to your inventory management system. For larger organizations, this is often an ERP platform. If your workers use mobile software that automates cycle counting procedures, then all relevant item data is collected at point-of-scan and transmitted to your ERP in real-time, bypassing this step entirely.
When to Conduct an Inventory Cycle Count
Schedule cycle counts during lower-activity periods for the items or locations being counted, or use system controls to prevent inventory movements from changing those locations during the count. In 24/7 facilities, the goal is to isolate the count area without unnecessarily disrupting the rest of the operation.
Timing may also be determined by other factors, such as:
- Why cycle counts are needed (e.g. inventory accuracy)
- How they will be executed
- Inventory value
- Inventory turnover
- Seasonal demand
- Warehouse layout
Just like cycle count methods, there are no right or wrong answers here. Each warehouse is different. Find what works for you.
Cycle Counting Challenges and Risks
Every organization faces challenges when performing inventory cycle counts. Common challenges include:
- Staffing
- Coordinating multiple teams and/or locations
- Timeliness and inaccuracy of paperwork
- Accuracy of the cycle count process
If these sound familiar, you’re not alone. To increase your team’s skill in performing the counts, consider holding mock cycle counts and keeping an open feedback loop should other issues arise.
Mobile cycle counting apps can reduce paperwork, eliminate duplicate data entry, and help teams update inventory records as counts are completed.
How Technology Supports Cycle Counting
Cycle counting is a value-add on its own. Technology can further enhance that added value, enabling you to manage inventory before it gets out of control. If cost is a concern, then research ROI.
Here are three ways technology assists with warehouse counting:
1. Data Management
Keeping data organized and free from error (“clean”) is important. Much of the heavy lifting is handled by inventory control software, WMS, or an ERP platform. However, each demands technical maintenance to keep multiple databases in sync. ERP mobility solutions can instead extend cycle counting capabilities to mobile devices, simplifying maintenance and complexity.
2. Mobile Scanners
Mobile barcode scanners can reduce manual entry and speed up the inventory cycle count process. A millisecond barcode scan can replace minutes of work and update your ERP instantly. Such a cumulative productivity gain is also a money-saver compared to paper printouts, spreadsheets, or obsolete barcode software. On-demand mobile barcode printers and RFID solutions enable one employee to do the work of two.
3. Robot Counters
An exciting segment of robotic automation is emerging around next-gen Industry 4.0 devices. Helper co-bots, autonomous vehicles, and physical automation devices like scales, carousels, industrial computers, and IoT devices are capable of collecting valuable data. Integrating floor-level machines with data collection software is key to harvesting the latest advancements in counting technology. If you’re looking to take your inventory counts to the next level, robotics could be the answer.
Mobile Cycle Counting Case Studies
Discussing the theory of automated inventory counting is one thing. Seeing real-world results is another. The benefits of inventory cycle counting methods are numerous. Here are three case studies that illustrate the impact of effective inventory cycle count programs:
Mining company Alliance Resource Partners revolutionized its cycle count process flow by replacing paper printouts and data entry with fast scan-as-you-go mobile apps. The end result was 40% better inventory accuracy and significantly more efficient processes.
In another cycle count use case, global steel manufacturer NLMK USA used mobile barcoding to cut cycle counting time by 60%, while reporting inventory accuracy between 96% and 100%.
Lastly, CryoLife’s cycle counting success story shows how automation and mobile offline inventory management software can work in the field. In this case, company representatives could use mobile barcode scanners to perform offline cycle counts on consignment inventory in hospitals. With no Wi-Fi or cellular coverage, offline data capture allowed teams to digitally count products on-site and in their native language using a mobile device instead of paper checklists.
To read more about these cycle counting examples, visit the RFgen Resource Library
WATCH VIDEO: How to get world-class accuracy with automated cycle counting »
Cycle Counting Software
Cycle counting hardware is little help without the right software. The modern warehouse needs powerful tools to fight labor shortages and inefficiencies. Failure to adopt cycle counting technology can hurt your productivity and revenue. Even old barcode software is little better than performing inventory counts by hand.
Look to mobile inventory solutions that go beyond basic cycle counting mobile apps to streamline every facet of material handling. Mobile barcoding can enhance cycle counts for inventory without disrupting operations, and even augment your warehouse operations with offline cycle counting.
Cycle counting remains a core inventory control process, and digital workflows can make it faster, more consistent, and easier to manage at scale.
Frequently Asked Questions About Cycle Counting
1. What is the difference between cycle counting and physical inventory?
Cycle counting checks smaller groups of inventory on a recurring schedule, while a physical inventory typically counts all stock at once. Cycle counts can be performed throughout the year with less operational disruption, while full physical counts may require larger portions of warehouse activity to pause.
2. How often should inventory cycle counts be performed?
Cycle count frequency depends on inventory value, turnover, accuracy requirements, and the counting method used. High-value or fast-moving items may be counted more frequently, while lower-priority inventory may be counted less often. Many organizations use ABC analysis to determine an appropriate schedule.
3. What are the most common cycle counting methods?
Common cycle counting methods include ABC analysis, process control cycle counting, opportunity-based counting, high-usage counting, control group counting, and random cycle counting. The right method depends on inventory priorities, known discrepancies, turnover, and the level of control needed.
4. What are cycle counting best practices?
Cycle counting best practices include maintaining a consistent schedule, defining clear counting procedures, assigning trained teams, limiting inventory movement during counts, investigating discrepancies, and updating inventory records promptly. Mobile barcode scanning can also reduce manual entry and help keep count data aligned with ERP records.
5. How does cycle counting improve inventory accuracy?
Regular cycle counts help identify inventory discrepancies before they accumulate. By comparing physical stock with system records throughout the year, teams can correct errors sooner, improve inventory record accuracy, and maintain more reliable data for purchasing, planning, production, and fulfillment.
6. Can cycle counting be automated?
Yes. Mobile inventory and barcode scanning software can guide workers through cycle counts, capture item and location data at the point of work, and update ERP records without relying on paper or duplicate data entry. Automation can also help standardize counting procedures across teams and locations.
