How To Use Inventory Cycle Counting To Optimize Your Warehouse

A full inventory count is an absolute pain.

There’s really no getting around that. Some large, inventory-centric businesses need to shut down operations for an entire week to perform a full physical inventory count.

That kind of all-encompassing disruption to a warehouse can have a high opportunity cost.

The obvious-on-paper solution is to switch from a warehouse-wide audit to a series of localized audits, moving to different sections over successive cycles. That way, the warehouse as a whole is still mostly operational at all times.

The main question, of course, is how.

Practical Cycle Counting: What Do You Count, And How Often?

Broadly speaking, cycle counting is a three-step process. First, you sort your inventory into “groups” to be counted one-by-one. Next, you develop a schedule for which groups get counted when. Lastly, of course, you execute that schedule.

There are plenty of different philosophies for how you should select your groups and design your schedule. Here are some of the most common methods:

• Control group cycle counting: Any good experiment has a control group as a point of comparison. If you’re just starting out with cycle counting, it might be a good idea to use a control group to work out the kinks in your process. Usually, this means you pick a small group of items and count them over and over and over again. Any inefficiencies in your process or discrepancies in your results should point you to parts of your methodology that can be improved.

• ABC analysis cycle counting: The most popular cycle counting framework is based on the Pareto principle: 80% of the outcomes stem from 20% of the causes. So, ideally, 80% of your counting efforts should focus on 20% of your inventory. So how do you pick the right 20%? Typically, you would sort your inventory into a tier-list with your most valuable (meaning most expensive, most in-demand, highest turnover, or some other metric of your choice) items being A-Tier and your least valuable being C-Tier. Then you can set up a schedule where your A-Tier items get counted, say, once a month, B-Tier once a quarter, and C-Tier once or twice a year. Of course, be prepared to shift some items from one tier to another and to adjust your cycle schedule as needed.

• Opportunity-based cycle counting: You might want to flag a group for counting after a large change, such as a re-order, relocation to another area in the warehouse, random surge in sales, etc. These large changes are the most likely times to cause errors in your records, and the easiest place for those errors to hide, so it’s a good idea to double check.

• Process-based cycle counting: Sometimes it’s best to just let the people on the floor make the decisions. The process-based approach lets managers decide which items or areas get counted next. They do naturally have the most detailed knowledge of the goings-on in the warehouse, so they know where their attention is most needed.

• Location-based cycle counting: From a purely statistical standpoint, the best sample is truly random. If you let a software system select a random section of the warehouse, with the eventual goal of making a full pass of every shelf in the building before looping around again, you introduce the minimum possible amount of human bias. You also guarantee that you get the most out of the “less disruption” benefit of cycle counting.

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