Cycle Counting vs. Physical Inventory

Having an accurate picture of inventory is crucial to a company’s success. You’ll be in a much better position to confidently fulfill customer orders, organize your warehouse more efficiently, and keep a better hold on costs when ordering more stock. In this blog, we compare physical inventory and cycle counting, and which option might be right for you.

Inventory counting is the verification of product numbers held in your warehouse at any time, with all stock counted and recorded.

Traditionally, monitoring stock has been carried out manually. This process can take several days, with multiple staff members needing to record all inventory at a warehouse and other locations. As a result, it’s not unusual for this process to cause downtime. But leaps in technology have introduced new tools, such as automated inventory technology, capable of continuously counting small samples that develop a complete picture of an inventory.  

Businesses use several methods to record their inventory, including:

Manual‍

As the name suggests, manual inventory involves employees recording inventory with nothing more than a pen and paper. Manual inventory tracking is most suitable for very small businesses that don’t carry a great deal of stock and can track all of their products with a simple system.

Electronic

Rather than using a pen and paper to note down stock, electronic inventory involves counting products using barcode scanners and point-of-sale systems. Electronic systems are more advanced than manual systems and generally deliver faster results and increased accuracy.

Cycle Counting

Cycle counting is the process of continuously counting small subsets of inventory that develop into a complete picture of your stock level over time.

Physical Inventory

Whole inventory counting involves every item in your facility, usually shutting down your warehouse.

What is Cycle Counting?

Cycle counting checks and balances are reconciled against a Warehouse Management System (WMS), which companies use to work out their Inventory Record Accuracy (IRA).

Cycle counting is usually done on a weekly/bi-weekly basis. There are a number of different methods that companies use to take on cycle counting, including:

ABC Analysis

This method starts by determining the value of your stock and dividing them into groups. Items placed in Group A will be fast-moving items that don’t typically take up a great deal of room in your warehouse or are low-cost. Group B will be items that are regularly turned over but at a higher value, while Group C will be slow-moving inventory.

In ABC analysis, you’ll count sections A and B more often than C to reflect how often stock is turned over. This method is sometimes known as 80/20, based on 20% of SKUs in a warehouse accounting for 20% of sales. It’s recommended that categories are regularly reviewed as items may need changing from one to another as they increase or decrease in popularity.

Physical Area

Another standard cycle counting method is splitting your warehouse into sections and going through them sequentially to develop a complete picture of your inventory. This can be broken up into SKUs of your warehouse or distribution center.

Control Group

Control Group cycle counting is the process of counting a small group of items in a compressed period. By doing so, you can pinpoint any errors with your counting technique and make the necessary corrections.

Random Cycle Counting

The Random Cycle Counting process involves randomly selecting the set number of locations to count, usually on different sides of a facility. Random counting can be done daily, meaning you can start working through your facility’s inventory in a time-effective way.

Hybrid

A hybrid approach combines ABC analysis with other factors, such as usage and value of inventory.

Cycle Counting Pros and Cons

Pros:

• Higher-order fulfillment rates, using cycle counting means the WMS shows you stock that physically exists in your facility, rather than what it thinks is there.
• Improved service and customer satisfaction as you can reliably fulfill orders
• Better informed decisions on buying and restocking
• Reduced errors with inventory as accurate data is readily available
• Reduced disruption to day-to-day operations

Cons:

• It can be challenging for employees if cycle batch sizes are too large or items are difficult to count.
• Typical manual cycle counting requires several employees to focus and dedicate a considerable amount of time
• Ties up material handling equipment for a non-value-added activity

What is Physical Inventory Counting?

Physical inventory is commonly carried out once or twice a year and requires facility downtime so every product can be accounted for. Physical inventory is usually carried out at a pre-determined time, often at the end of a reporting period. The aim of physical inventory is to ensure that existing inventory records are correct and that any anomalies can be addressed.

Physical Inventory Pros and Cons

Pros:

• A holistic view of your warehouse
• Good understanding of all your product

Cons:

• Facility downtime
• Time-consuming
• Risk of errors existing for months before they are found
• Risk of being unable to fulfill orders because of inaccurate inventory
• A lack of automation
• It’s only a snap shot at one point in time

Which Option Should You Choose?

When it comes to warehouse inventory management, it’s hard to ignore the benefits offered by cycle counting. Businesses of all kinds rely on data that is accurate and up-to-date. Checking inventory continuously through the year will give you a better picture of the stock you hold. You are also less likely to be unable to fulfill orders and better able to act on inventory errors.

Automating Cycle Counting

Historically, cycle counting couldn’t offer a clear advantage over physical counting with the staff resource it demands. As demand for commerce has grown over the last 20 years, so has the size of warehouses, meaning cycle counting can be taxing on employees. But technological advances mean there are opportunities to automate the cycle counting process.

With automated inventory control solutions, you have the ability to increase your inventory accuracy, improve efficiency in your warehouse, and gather more insights to share with your team.

Learn more about our inventory control solution and how it works.