Inventory stock counting is imperative for a business’ success. Inaccurate inventory data can lead to delayed orders and disgruntled customers, and of course incorrect inventory reports. In order to prevent inventory stock inaccuracies and errors, your business should be performing periodic inventory stock counts. Businesses can count inventory in one of two ways, either by a yearly physical count, known as stock take, or through cycle counting.
By having a basic understanding of the two methods, a business can then determine which inventory stock counting method is more appropriate.
A physical count is the counting of all SKU’s within a short time frame and is typically done annually. Shutting down operations at the end of each year and counting inventory stock allow you to begin each new year with up-to-date data although the disadvantages of an annual physical stock take typically outweigh the benefits.
Some of the drawbacks to annual physical stock takes include:
- Shipping and receiving operations must be shutdown to count all inventory
- Businesses that are not automated have a higher likelihood of error
- Laborious and time consuming
- Provides yearly data on inventory variances
- Requires business downtime
Most businesses are familiar with physical counts, especially if your business deals with any form of inventory stock. And while this method gets the job done, cycle counting is a more proactive method that allows you to reduce inventory stock discrepancies on a regular basis as opposed to once a year. Cycle counting requires your business to be committed to performing regular inventory stock audits at least once a week. If your business cannot meet this commitment, then your business should stick to the yearly physical count.
Cycle counting is a continuous counting system where a small subset of inventory stock, in a specific location, is counted on a specific day. By performing cycle counts, your business is regularly validating the accuracy of the inventory stock in your system. This method of counting is more common among large scale organisations that have a large number of items in inventory stock and where it is not feasible for the business to be closed for a long period of time to perform an annual inventory count.
By conducting cycle counts, businesses experience the following benefits:
- More labour and time efficient
- Reduces inventory variances regularly
- Reduce disruptions to your business’s operations
- Occurs on a regular basis
- Saves money
- Less complex than doing an annual physical count
Not only does cycle counting improve the accuracy of the count, but it allows for an annual review of each line or segment of products. This process improves inventory stock turnover by giving buyers insight into what items should continue to be stocked and helps analyse missed sales opportunities.
Although the benefits of cycle counting have made annual physical counts or stock takes almost obsolete, some businesses that maintain a small inventory may choose an annual physical stock take still. Some businesses decide to perform both an annual stock take count and periodic cycle counts. This allows them to closely manage inventory stock variances and update accounting records. Implementing an effective inventory stock counting program has many benefits as using the right counting method can help you discover process errors and inefficiencies, improve accuracy and productivity. You’ll also be able to provide better customer service with more accurate records as you’ll know which items are in stock for upcoming orders.
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.