Cycle Counting: What It Is, Why You Should Use It, and How to Do It Right

Following Cycle Counting Best Practices can save you tons of time in stocktaking

Knowing what inventory you have is a fundamental step toward forecasting how much inventory you’ll need.

But traditional stocktaking processes like a full physical inventory are often time-consuming, profit-shrinking, and headache-inducing.

Yet most small businesses only use a full physical inventory to take stock.

Well, you no longer have to suffer through a full physical inventory like most small businesses.

What’s the alternative to a physical inventory?

Cycle counting.

In this post, we’ll show you what cycle counting is, its benefits, and how it works. We’ll also show you some cycle counting best practices.

By the end of this post, you’ll know how to avoid the pain of a full inventory by performing a cycle count of your inventory instead.

What is Cycle Counting?

Cycle counting is an alternative stocktaking process that involves regularly counting a small portion of your inventory over time instead of counting your entire inventory in one sitting.

While most businesses have to shut down or work overtime to perform a full physical inventory, cycle counting allows businesses to update their inventory records without shutting down during business hours or working after closing time.

The cycle counting process is simple:

• Choose when you will perform the cycle count
• Choose which items in what order get counted
• Choose how often you perform your cycle count
• Start cycle counting

Benefits of Cycle Counting

While cycle counting can be difficult to implement at first, you’ll receive significant benefits after your cycle counting system is running smoothly.

Here are just a few benefits of cycle counting:

• Less disruptive to business operations
• Saves more money through reduced downtime and labor
• Improves accuracy of stocktake because employees are less likely to make mistakes when counting a smaller volume of inventory
• Gives you the ability to find and fix errors before they get out of control
• Gives you a “real-time” sense of your inventory levels, leading to less over-ordering or under-ordering
• Lets you spend less time counting inventory and more time growing your business

Cycle Counting Methods

Cycle counting is not a method in and of itself. It’s a process, and there are multiple methods for applying this process.

Below are 2 of the most popular ways for implementing cycle counting.

Control Group Cycle Counting

Control group cycle counting is especially helpful for businesses using cycle counting for the first time because it allows you to test the process and uncover errors in your method before implementing it across your entire inventory.

With this method, you will choose a small group of items that will be counted many times over a short period.

Once you’re able to perform the cycle count without any errors, and you feel confident in your process, you can now apply it to the rest of your inventory.

ABC Inventory Cycle Counting

ABC analysis of inventory is a method of sorting your inventory into 3 categories according to how well they sell and how much they cost to hold:

• A-Items – Best-selling items that don’t take up all your warehouse space or cost
• B-Items – Mid-range items that sell regularly but may cost more than A-items to hold
• C-Items – The rest of your inventory that makes up the bulk of your inventory costs while contributing the least to your bottom line

ABC Inventory cycle counting uses the ABC categories to guide the cycle count process.

• A-Items – Counted most frequently (multiple times throughout the year)
• B-Items – Counted somewhat frequently (a few times throughout the year)
• C-Items – Counted infrequently (once or twice throughout the year)

3 Cycle Counting Best Practices

Now that you know what cycle counting is and how it works, let’s go over some cycle counting best practices to make it easier to use in your business.

Develop a Plan for Routine Cycle Counting

Before jumping into a cycle counting routine, you should detail exactly what you’ll be counting, when you’ll be counting it, how you’ll record your counts, etc.

You could make cycle counting a part of your daily routine, or choose one day every week to do it. Whatever your plan is, write it down and stick to it.

Create a Cycle Counting Team

You have to be on the frontlines implementing cycle counting…but you don’t have to do the cycle counting yourself.

Instead, you should assemble a team to perform the actual counting. Your team can consist of one other person or a group of employees.

Regardless, make sure they understand their job responsibilities, the layout of your warehouse, and how to use the tools for counting your inventory.

Test Your Cycle Counting Methods Until You Find the Right One

The goal of cycle counting is to accurately assess your inventory levels without spending too much time counting.

To achieve this goal, you’ll need to experiment with which items get counted when, how often you count, etc.

Your first goal should be to count your entire inventory four times a year. After you hit that goal, you’ll know if you need to count it more or less, depending on your rate of inventory turnover.

Want to Know What’s Even Better Than Cycle Counting?

Small businesses use cycle counting because they can’t afford to shut down for an entire day.

Plus, shutting down your business just to count your stock is a massive headache.

So what if there was a way to know how much inventory you have WITHOUT performing a cycle count or shutting down for a full stocktake?

Well, there is.

It’s called DEAR Inventory. And you can find out how it works below.

DEAR Inventory Makes Cycle Counting Obsolete

Stop Manually Stocktaking for Good with DEAR Inventory