There are two ways to determine the best cycle counting method for your business – physical area and sales ranking.
Physical Area Cycle Count Method
The physical area cycle count method divides inventory into sections and items are identified by physical space. This could be department or product category. With this method, high volume areas need to be counted more frequently.
APICS recommends you count your entire inventory 4 times per year. If you have 8,000 items in inventory and operate 306 days of the year, that means you should count 26 items per day. Multiply that by 4 times per year and you are counting 104 products each day.
Sales Ranking Cycle Count Method
The second method for cycle counting is the sales ranking method. This method is based on the 80/20 rule (Pareto Principal) and is also known as ABC Cycle Counting.
A items account for 80% of sales- B items account for 15%
- C account for 4%
- X items account for 1%
With the sales ranking cycle count method, you count the faster moving, high dollar items more frequently than the slower moving, low dollar items. Your A items, accounting for 80% of sales, should therefore be counted most frequently.
Following APICS recommendation to count inventory 4 times per year, your recommended count schedule using the sales method would look like this:
- A items: 4-6 times per year = 9,600 count
- B items: 3 times per year = 7,200 count
- C items: 2 times per year = 6,400 count
- X items: 1 time per year = 800 count
That sum brings you to 24,000 counts. Again if you are operating 306 days of the year, you are looking at 78 counts per day.
Your yearly count schedule could look something like this:
- January “A” Items
- February “B” Items
- March “A” Items
- April “C” Items
- May “A” Items
- June “B” Items
- July “A” Items
- August “C” Items
- September “A” Items
- October “X” Items
- November “B” Items
- December “A” Items
How to Improve Your Cycle Counting Method
After a physical or cycle count, there may be variances in your reporting that need to be analyzed. Take steps to identify the errors, research the cause and take corrective measures to prevent the errors from happening in the future. If you fix the underlying problems and errors are eliminated, you could one day remove a physical count altogether and rely on small cycle counts to keep inventory more accurate.
Cycle Counting Success Story
You can hear from one WiSys customer who was able to move from a once a year physical inventory to an inventory based on perpetual cycle counting in the video below.
Warehouse Management Solutions for SAP Business One and Macola Software
WiSys Agility solutions have been designed to achieve efficient Warehouse Management, Supply Chain Management and Inventory Management for SAP Business One and Macola Software customers. Contact us to learn more.