Maintaining inventory is a big job. It is a business’ biggest asset and it pays off to count it properly. Counting your inventory can be done in different ways. It is important to understand which type of counting system is right for your business when doing a stock take. Inventory can be counted on an annual basis or it can be done through a perpetual counting system. There are a multitude of factors that play into the decision of inventory counting. By breaking it down into the basics, this will provide a clearer idea of which inventory counting system is right for you.
With cycle counting, inventory is counted perpetually. Since trying to collate inventory is a big undertaking, cycle counting does it in small doses. A small subset of inventory is selected from a specific location and counted on a specific day. For example, if you have a shoe warehouse, one day you might only count running shoes from a particular brand. By utilising this sort of counting method, it allows you to regularly keep tabs on your inventory. With regular assessments you will be able to see how accurate your inventory system is for your business.
Cycle counting can be very useful in a variety of inventory systems, but it’s more applicable to larger businesses. A large business will generally have a large inventory. It is hard for businesses to close down operations to undergo an annual physical inventory count. A cycle count allows for the business to remain operating as usual with just one subset of inventory being counted at a time.
The cycle count is beneficial because it minimises disruption in the warehouse. The business can still fulfil orders and re-stock in other areas. Since you don’t have to close down completely, you effectively save money. There is a large opportunity cost and financial cost for closing down a warehouse for an annual physical inventory count. In addition, with cycle counting there is less chance for human error. The cycle counting task is not as lengthy or arduous as an annual count, therefore, employees will be sharper and less fatigued during this process.
Annual Physical Count
An annual physical count is conducted as one giant stock take. This type of inventory stock take is useful for smaller businesses that do not have big inventories to manage. When an annual physical count is undertaken, all of the stock keeping units (SKU’s) are counted at once. This involves shutting down the warehouse from anything coming in or out and accounting for it all over the course of a day or two.
There are many benefits of this type of counting scheme. It only happens once and can be done at the end of the year. This means staff members are only distracted by the process for a few days out of the whole year. You can also enter the new year afresh by knowing exactly what you have on hand at the start. This type of stock take uses a lot of resources however, and there is a higher chance for human error.
Depending on your business’ needs, a cycle count and annual physical count may be helpful to collect the right information on your inventory.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.