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Inventory Control

Cycle Count, Cycle Count, Cycle Count

Once you’re in the habit of continuously cycle counting, you’ll probably never have to do a full physical inventory again.

Originally published by

By Ted Hurlbut

Hurlbut & Associates

Ever wonder how a large, big box retailer keeps their inventory straight. If you're like many small retailers, taking a full physical inventory can be a painful process. How does a retailer on a much larger scale do it?

They cycle count. And cycle count. And cycle count.

In fact, they almost never shut down for a full physical inventory. It's simply too expensive to be closed for even a day. Instead, they are always cycle counting, always counting something.

What exactly is cycle counting? It is the process of continually validating the accuracy of the inventory in your system by regularly counting a portion of your inventory, on a daily or weekly basis, so that every item in your inventory is counted at least several times a year.

The benefits of continuously cycle counting are numerous:

• It's impossible to fully take advantage of the replenishment functionality found in many small retail software packages without maintaining accurate inventories in your system. It's the old saw; garbage in, garbage out. And experience has proven time and again that maintaining accurate inventories and fully utilizing replenishment software leads directly to sales increases.
   
• Nothing erodes customer service more than salespeople who don't trust the inventory in the system. When the information is wrong, and the needed re-orders aren't coming in when they're needed, it's very difficult for even the most skilled salespeople to present a confident, positive face to the customer. In fact, it's usually the best salespeople who are the best gauge of how far off the inventories in the system have become. A regular cycle counting program directly impacts your customer service and the face you are putting forward to your customers.
   
• Counting your inventory on regular basis imposes an additional level of operational efficiency. If you are constantly counting something, then inventory must always be organized, retail displays filled in, fresh receipts promptly put away, committed inventory properly tagged, transfers processed and closed out. Work cannot be allowed to linger uncompleted, so things become more buttoned down. And when you are counting something every day, every member of your team will become more aware of both physical inventory control and inventory accuracy in your system.
   
• Frequent cycle counting shortens the period of time between physical counts of any given item. As a result, the cause of any discrepancies that turn up during a cycle count will have been recent. This gives you a much better opportunity to fully diagnose the cause of the discrepancy, close any procedural loopholes and coach any human errors. Inventory write-offs, as a percentage of inventory investment, are much lower with regular cycle counting.

Here are a few additional thoughts to keep in mind as you're implementing your cycle count program:

1. Cycle counting must become part of your daily or weekly routine. Turn on the lights, unlock the doors, count out the cash drawer, make coffee, cycle count. If you only cycle count sporadically, you'll only get sporadic results. The only way to get the full benefit of any cycle count program is to count regularly, every day or every week, without fail.
    
2. Set up a schedule for conducting your cycle counts. I recommend developing a 13-week cycle count calendar. You should schedule to count everything at least once in that 13-week period, and your faster turning, higher volume items and categories two or three times. Most software packages allow you to conduct a cycle count by category or subcategory, so break down what you plan to count each day by category or subcategory, and schedule your counts. Then, keep to your schedule.
    
3. Like any physical inventory, the key to obtaining an accurate count is the preparation you do even before you begin counting. These pre-count preparations includes filling in and organizing all display tables, shelf facings and peg hooks, organizing all understock, overstock and backstock areas. This preparation needs to take place the day or night before the actual cycle count, so that on the day of the cycle count there's no question that the inventory is ready to be counted.
    
4. Like a full physical inventory, you'll need to close out any open inventory transactions in those categories or subcategories that you are counting before you start. All 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. If you have any transactions still open, they will need to be reconciled with your actual count before closing and posting the cycle count, and that makes reconciliation that much more difficult.
    
5. Most software packages will take a snapshot of your inventory when you open up a cycle count in the system, then process adjustment transactions against that snapshot after you enter your actual counts. This means that the actual counting must take place as soon after the cycle count is opened as possible. For this reason, I recommend that you do your cycle counts the first thing in the morning.
    
6. Cycle counting inventory on the sales floor often is the biggest challenge for small retailers. It's not always possible to complete a cycle count before the store opens. In that case, you will need to keep track of any inventory movement on the sales floor in the category or subcategory that you're counting after the cycle count has been opened, but before the actual counting has occurred. This movement includes any sales you might make, but also includes any merchandise a customer might pick up and carry around the sales floor before purchasing. You will need to add back these units to your actual count before you enter it in the system.
    
7. Start small. Don't try to count your biggest or best selling category or subcategory right away. Start with something smaller, with less movement, to learn how your software package works and build your understanding of the process. I would recommend spending a month of counting carefully selected categories or subcategories, building your skill and confidence, before implementing a 13-week schedule.

The hardest part of cycle counting is getting started. But once you get rolling, well, you'll find you're rolling! And the payoff? Not only will your inventory be much more accurate, once you're in the habit of continuously cycle counting, you'll probably never have to do a full "close the doors and stop everything" physical inventory again. Imagine that!

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