Cycle Counting 101

Cycle counting 101

Cycle Counting 101

The majority of cycle counting techniques rely on product sales ranking and/or value. This is also referred to as the Pareto method, which involves counting your faster-moving, more expensive products more frequently.

The Pareto method, also known as “ABC cycle counting,” is the concept that 20% of a warehouse’s components relate to 80% of sales, or thereabouts.

“A” items are likely your fastest-moving SKUs, or most valuable assets by currency value, or perhaps valuable based on the mission critical nature of the function they perform (e.g. an accessory that an expensive product cannot function without). B items would be slower moving and less valuable. C items are the very least important, slowest moving, and/or least valuable items in which the time and expense to count is simply not justifiable.

Inventory control software or your direct knowledge of your products can be used to identify A, B and C items. Very likely, you may want to count your A items more frequently, and B and C less frequently. An example would be counting A items monthly or quarterly, B items semi-annually, and C items once annually. Of course, the exact schedule is subject to your discretion.

You may use other metrics, such as transactions and production numbers, to formulate the ABC cycle count. There are many different statistics you can examine in order to figure out which items have a significant influence on your company’s overall inventory value and order fulfillment performance.

However decided, be sure to publish a calendar for the counts to relevant stakeholders in your organization and gain alignment on the process. For example, does your fulfillment operation need to stop shipping the product being counted on a given day? Perhaps other groups outside of operations (e.g. sales, marketing, and finance) will need to know that fulfillment will be frozen for a given period of time.