How to do a Cycle Count: The Key to Inventory Accuracy

There’s a universal principle called the law of entropy. To boil it down, the law of entropy essentially means anything that’s left alone will eventually devolve into chaos. It’s a principle every homeowner knows all too well. Anything that isn’t being actively maintained, built, or replaced, is on its way to breaking.

Inventory is definitely subject to the law of entropy. If inventory is not being actively maintained, it will soon result in chaos. But thankfully, there is a defense system against inventory entropy: Cycle Counts!

First, what is a cycle count?

A cycle count is the process of counting small sections of your inventory every day, week, or month so that you cycle through your entire inventory on a consistent basis.  

A cycle count will result in small adjustments made to your inventory counts on a consistent basis.  This practice will keep your inventory counts accurate between the larger full inventory counts that are done yearly or semi-yearly.

What is the cycle count process?  

There are two ways to determine the best method for your business - physical area and sales ranking.

To use physical area for cycle counts, you will divide your inventory into pieces.  This can be done by vendor, category or department, etc.

  • Vendor A

  • Vendor B

  • Vendor C

  • Vendor D

Once you have determined your divisions, you will set up a schedule for these divisions to be counted. You will want to ensure your entire inventory is counted a minimum of 4 times per year.  So, if you have 13 vendors, you will count all products from 1 vendor each week and then start the list over again. In 1 year, you will fully count your inventory 4 times.

To use the sales ranking for cycle counts, you will use the ABC cycle counting process.  

Your inventory is divided into these sections:

  • A products account for 80% of total sales

  • B products account for 15% of total sales

  • C products account for 4% of total sales

  • X products account for 1% of total sales

With the sales ranking method, you count the products that move faster and are higher dollar products more frequently than the slower and lower cost products. The recommended frequency for these counts are:

  • A products - 4-6 times per year

  • B products - 3 times per year

  • C products - 2 times per year

  • X products- 1 time per year

After you have set up your cycle count schedules, you will want to set time aside to do these counts. Preferably when you are not selling so the counts are most accurate.  

Shopventory’s Stocktakes and Approvals feature is a great way to pull your inventory section for the current cycle count.

Cycle Count has been completed. Now what?

After completing your cycle count, you may need to make some adjustments to your stock counts.  It is a good idea to have a second employee or manager confirm the discrepancies. Look into any differences to see if you can identify where the deltas are coming from.  Once you have identified any issues that are causing your inventory numbers to be off, take corrective measures to prevent these issues from continuing.

By systematically and consistently doing cycle counts, your inventory will become more accurate and you will be able to make better business decisions for the health of your business.