Basic concepts

What is a cycle count?

A cycle count is the process of physically counting a subset of inventory in a specified location on a recurring basis.

Cycle counting helps companies confirm the accuracy of the inventory quantites reflected in their inventory management system by counting selected products/locations. This can reduce inventory loss, unexpected out-of-stocks and obsolete inventory that result in both lost revenue and unhappy customers.

Companies are using various inventory management systems - tiny ones could be using just a simple spreadsheet to track the inventory while large ones usually utilize more sophisticated solutions based on relational databases and ERP systems. This data is often automatically/manually updated through integrations with e-commerce solutions.

Let's look at simple example. Our inventory management system could be telling us that in a given location we expect 10 inventory items but if we actually go there and count the items we can only find 5 or 2 or even 0. Inaccurate inventory records can impact company's operations severly.

Delayed product orders can cost you customers

According to various studies, up to 69% of your customers won't shop with you again if their delivery is delayed by more than two days. If a customer orders a product that exists in the record but not in the warehouse, it could take weeks before they get the package. If two days is enough to cost you their business, imagine how they'll react to a much longer delay. Or worse - you could be forced to cancel those orders. Also if you have large numbers of lost items it could be indication that you could be hiring fraudulent workers. Keeping your inventory counts accurate will help you avoid unexpected stock outs like this.

Unregistered inventory won't get sold

You will probably also have inventory that doesn't exist on record. You won't be able to sell or plan to move this inventory. That will considerably slow down sales of a product, and may also hamper inventory control efforts by leading to expired or spoiled goods. Inventory forecasting is another critical process that can be disrupted by inventory inaccuracies, which can lead to further order fulfillment and replenishment issues.

Can lead to overstocking and extra holding costs

Bad records can often lead to poor decisions, like buying too many inventory items based on flawed usage numbers. That will lead to excess inventory, extra carrying costs and fill up your warehouses with unsellable stock. An effective inventory process needs to maintain accurate digital records. If not, it's impossible to manage your stock levels efficiently.

Cycle count process steps

1. Select a set of locations you want to count - make sure to exclude those locations from fulfillment operations as this may change quantities during the count

2. Extract inventory list for selected locations from inventory management system

3. Compare expected quantities from inventory list with actual quantities counted in real-life

4. Make changes in the inventory management system to reflect what is on the shelf, floor, pallet etc.

While cycle counts can be planned and scheduled according to a number of methods, it is recommended to do regular cycle counts at least once a quarter.

Conventions

Throughout our documentation examples we will use boroughs of New York City to name stores:

Manhattan
Brooklyn
...

We will name locations with arab numbers with store name prefix:

MANHATTAN-AREA-1
MANHATTAN-AREA-2
MANHATTAN-AREA-3
...

We will describe SKUs with colors:

SKU-RED
SKU-GREEN
SKU-BLUE
...

We will describe each inventory item of same SKU using following pattern with GUIDs:

SKU-RED-8c45d4ef-bb02-494d-a2b5-7d0dc0749a41
SKU-GREEN-4a0a9ad7-9217-4e95-ad89-28d9ddf34580
SKU-BLUE-85803479-43a8-4d58-8a42-6561c9325368
...