Maintaining physical inventory accuracy is one of the biggest challenges physical retailers and e-commerce merchants face these days. Between admin errors, stock movement, shrink, and a whole range of other issues, it’s all too easy to lose track of your inventory, and before you know it, the numbers you have on paper are nowhere near the actual stock count.
That’s why it’s critical that you physically count your merchandise and evaluate your entire inventory (aka: perform stock-takes) on a regular basis.
There are generally two ways to do this. One is to do an annual or semi-annual physical inventory count once or twice a year, where you physically take count of every single item in the store and update your records. It’s a reliable process, and it can certainly help retailers keep accurate inventory counts. But a big downside of a full inventory count is that it’s so time-consuming and labor-intensive, that it will likely require you to temporarily shut down store operations, and turn away customers like this retailer below:
Fortunately, there’s another way. Retailers who are looking to regularly count items without having to temporarily close their stores can implement cycle counting instead.
What is cycle counting?
Cycle counting is the process of partially counting merchandise on a continuous basis so you can stay on top of stock levels without having to interrupt regular store operations. The cycle counting process entails that you count just certain portions of inventory on a daily or weekly basis so you won’t have to do a full inventory count anymore.
The cycle counting process: A step-by-step guide
Now that we’ve covered the basics of cycle counting and its role in inventory control, it’s to get into the nitty gritty of how this counting method works.
In the following paragraphs, we’ll talk about how you can effectively implement cycle counting in your store. We’ll also walk you through the inventory cycle count process, and how to ensure that everything goes on without a hitch.
Check out the steps and tips below.
Determine when and how you’re going to count merchandise
As we’ve mentioned earlier, cycle counting involves taking count of only small portions of inventory at a time. So the first thing you need to do is to plan out which items to count at a given period. Here are a few ways to go about this:
nt frequency. Here are a few ways to go about this:
a. Do an ABC analysis
Most retail and inventory experts recommend using the ABC analysis to portion out which items to count. This entails dividing your products based on value, and then counting the most high-value items more frequently.
Here’s how it works:
Take the top 20% of your inventory items in terms of cost or turnover and put them in Group A. Then, take the next 60% of products then put them in Group B. The remaining 20% will belong to Group C.
Next, decide on how often you’re going to count the items in the three groups. “A items” should be the most frequently counted, followed by items Group B, then your “C items”.
Your cycle count frequency will depend on your inventory and store, but you’ll want to complete multiple cycle counts per year to maintain inventory accuracy.
Here’s a quick table of what a retailer might come up with when grouping items using the ABC method:
b. Consider seasonality
Another good factor to consider when cycle counting seasonality. If a particular category or product type is in season (e.g. plaid shirts in the fall), you should count them more often.
As retail expert Matthew Hudson wrote on The Balance, “there is no need to count long sleeve shirts in July. Count your shorts in July. The idea of cycle counting is to be able to respond before the season ends. In other words, fix the errors on products that are selling now. While it does make sense to cycle count for planning purposes for the Fall, the real benefit will come when you can respond immediately while the products selling opportunity is at its peak.”
c. Be arbitrary (but systematic)
You can choose to be more arbitrary with the types of cycle counting process to implement, as long as you have an organized system for doing so.
For instance, you can portion and count items according to where they’re located on your sales floor or stock room. In this case, you’d probably want to create a map indicating where each section or shelf is located, then create a system where you’ll count items in shelves 1-3 on one day, then move on to 4-6 the next, and so on.
You can also cycle count according to the products’ department, supplier, type, or brand. Or, you can opt to count similar items in one go.
It’s really up to you and what makes the most sense for your business and the fluctuations of your inventory levels.
But regardless of which cycle counting method you choose, the key is to stay systematic and organized. Figure out a process that works for you, document it, put it on your calendar, then implement (and refine if necessary).
It also helps to use nifty tools that’ll enable you to perform cycle counting more efficiently. Do yourself a favor and don’t use a pen a paper. Instead, utilize an inventory management system to get the job done. Doing so will not only make you more productive, but it’ll help you spot issues in your inventory records more quickly.
As Forrest Burnson, an inventory management expert at the software consultancy Software Advice, says, “The primary benefit of using software is it saves business owners a considerable amount of time from not having to manually enter in this information every time an item enters or leaves the warehouse/store. Furthermore, if a business owner is doing regular cycle counts of inventory with their software, and making a note of discrepancies, patterns can start to emerge if there is a problem, which can lead to a more thorough investigation.”
Organize your physical space
You may have a great system on paper, but if your products are all over the place, you won’t be able to implement the task successfully. Take some time to organize your store. Make it easy for yourself (or your staff) to physically see and count the number of items you have. This means that items have to be on the right shelves or containers. Take a look around your store or back room to ensure that products aren’t out of place and important areas, boxes, or fixtures are properly labeled.
Complete any pending inventory transactions or tasks
In an insightful article on cycle counting, Ted Hurlbut of Hurlbut & Associates wrote that retailers must “close out any open inventory transactions” before cycle counting. According to him:
Restocking from understock, overstock or backstock must be completed before counting begins. All received purchase orders and inbound transfers need to be received in the system and physically put away. All completed customer orders need to be closed and invoiced.
Start your physical inventory count
Once you have your physical products and paperwork (or digital records) in order, start physically counting items according to the system you’ve determined in the previous steps. This part is pretty straightforward. When counting items, stay focused on the task, double check your numbers, and stick to your system.
If possible, have two people count the same merchandise independently, then have them compare counts to ensure accuracy.
And as mentioned earlier, you can prevent inaccuracies by using automation in your cycle cont process. Rather than relying on manual data entry methods that require clipboards and spreadsheets, see if you scan an item’s barcode directly into your inventory management system. Doing so will keep your inventory data in check, reduce human error, and make the cycle counting process go by much faster.
For best results, use software that can provide you real-time inventory data and metrics, so you always know what you have at any given time.
After counting: Review, adjust, and take action
Once the counting is done, review your records and determine your next course of action. For example, if you notice any huge discrepancies in your physical inventory with what you have in your inventory management system, then you may want to dig deeper to find out why your numbers aren’t matching up.
Do you need to be more organized? Should you be worried about theft? The only way to answer these questions is to do your physical inventory counts regularly, look at the numbers, and investigate accordingly.
If you need more advice on counting and reconciling your inventory, check out Vend’s Complete Guide to Retail Inventory Management. This handy resource offers advice and action steps to help you:
- Set up your products and inventory system correctly
- Get the right people and processes in place so you can stay on top of stock
- Figure out which of issues are causing shrink in your business so you can prevent them
Recognize the positive by-products of cycle counting
While the primary purpose of cycle counting is to maintain inventory accuracy, there are a lot of other benefits that can come out of it. For one, it can help you run your store more efficiently. Since your staff is aware of that you’re always counting products, they’ll be more likely to stay on top of admin work, put items in their proper places, and be more organized overall.
Inventory cycle counting can also help reduce theft. As Burnson puts it, “if employees know that the owner or manager does regular cycle counts and audits, they might be less likely to steal.”
Final thought: Make cycle counting a habit
We hope this post helped you see the value of having a cycle counting program and gave you some ideas on how you can implement it in your store.
If we had to leave you with one more thought, it’s this: the key to cycle counting success is to make it a habit. The benefits we talked about – i e., inventory accuracy, store efficiency, and theft prevention–all that will only come if you go through the cycle counting process regularly.
Yes, the task can be repetitive, but stick to it anyway. Trust us, the time and money that it can save you are well worth it.
Want to make inventory counts easier for yourself and your staff? Check out Scanner by Vend, a nifty mobile app that lets you conduct physical inventory counts using your iPhone, iPad or iPod Touch.
Just scan an item’s barcode using your phone’s camera and Scanner will automatically record the SKU for you. Scanner also syncs completed counts with your Vend account, so once you’re done counting, you can easily update your stock levels.
Not a Vend user? Scanner will create a CSV file that you can easily email to you and your staff.Learn More
About Francesca Nicasio
Francesca Nicasio is Vend's Retail Expert and Content Strategist. She writes about trends, tips, and other cool things that enable retailers to increase sales, serve customers better, and be more awesome overall. She's also the author of Retail Survival of the Fittest, a free eBook to help retailers future-proof their stores. Connect with her on LinkedIn, Twitter, or Google+.