Two popular methods used for inventory counting are cycle counting vs. physical counting. These approaches are vital in ensuring inventory accuracy but differ in process, frequency, and overall objectives.
Accurate inventory management is crucial for businesses to thrive in today's competitive landscape. It enables them to meet customer demands, minimize stockouts, and optimize their supply chain operations.
And these approaches help them do the same. This article will dive into the key differences between physical count vs cycle count and provide insights on choosing the most suitable method for your business.
What Is a Physical Inventory Count?
A physical inventory count is also known as a physical stocktake or a full inventory count. It is a comprehensive process of counting and verifying all the items in a business's inventory at a specific time.
It involves physically inspecting and counting each item in stock, comparing the actual quantities with the amounts recorded in the inventory system, and reconciling any discrepancies.
A physical inventory count aims to ensure the accuracy of inventory records and provide an up-to-date understanding of the stock levels. It helps businesses identify and address issues such as stockouts, overstocking, shrinkage, obsolescence, and inaccuracies caused by errors in data entry or system glitches.
Physical inventory count involves planning, suspending operations, preparing documentation, analysis, and reporting.
What Is a Cycle Count?
Cycle counting is a method of inventory counting that involves regular counting. It accounts for the calculation of inventory items throughout the year, rather than conducting a full inventory count all at once.
The subset of items to be counted is determined based on factors such as item value, turnover rate, criticality, or other predetermined criteria.
The primary objective of cycle counting is to ensure ongoing inventory accuracy and promptly identify and rectify discrepancies.
Businesses can maintain accurate records by regularly counting a smaller portion of the inventory. In addition, it also helps minimize disruptions to operations and reduce the need for extensive, time-consuming physical inventory counts.
Why Cycle Counting Is Effective
Cycle counting offers significant advantages over physical inventory counts for many companies. Firstly, it is less disruptive as only a small portion of the inventory is counted at a time, allowing normal business operations to continue smoothly.
Unlike a single comprehensive count at the end of the year, cycle counting involves a manageable level of ongoing effort throughout the year.
By conducting counts regularly, cycle counting enables prompt identification of issues that could worsen if left unaddressed until the next full physical inventory count. It is particularly crucial in the current era of continuous e-commerce orders.
Furthermore, cycle counting allows companies to monitor the accuracy of their inventory counts continuously. It facilitates necessary adjustments to counting methods or training to maintain high levels of accuracy.
Cycle Count vs Physical Count: What's the Difference?
Here are some key differences between cycle counting vs physical inventory:
| Physical Counting | Cycle Counting | |
|---|---|---|
| Benefits | Provides certainty at the start of the financial year | Allows normal business activities to proceed without major disruption throughout the year. |
| Disruptions | Significant short-term disruption. | No major hindrances, but requires consistent attention. |
| Flexibility | Lacks flexibility. | Offers flexibility and agility. |
| Real-time Monitoring | Does not enable real-time monitoring. | Enables real-time monitoring of key stock-keeping units (SKUs) or manufacturing parts. |
| Disciplined Routines | This method usually runs on traditional practices. | Requires disciplined routines and schedules to establish effective cycle counting |
| Accuracy | May be inaccurate as a snapshot of inventory is captured only at the beginning of the year. | Continuous improvement, higher accuracy, and timely detection of discrepancies. |
| Actionability | Limited opportunity for prompt action. | Closed-loop process that triggers prompt rectifications and initiatives. |
| Decision-making | Limited ability to make informed decisions. | Provides streamlined structure to make informed decisions. |
| Inventory Management | Limited scope to improve inventory performance due to reactive approach. | Proactively manage inventory and operational processes. |
| Choosing between cycle count vs. physical count |
Cycle Counting vs. Physical Inventory: How to Select the Best Inventory Counting Technique
With the increasing size and complexity of warehouses and facilities, conducting physical annual inventory counts becomes progressively challenging, time-consuming, and expensive.
Consequently, the significance of cycle counting in inventory management rises in comparison. Companies often adopt a combination of cycle counting and physical counts as part of their inventory management strategy.
For instance, retailers may conduct cycle counts throughout the year, emphasizing high-demand items. Subsequently, they may perform a comprehensive physical inventory count after the holiday season concludes.
Alternatively, some businesses may opt for a final physical count to establish a robust foundation before transitioning to cycle counting. By utilizing a mixed approach between, physical inventory vs. cycle counting, companies can effectively balance the advantages of both methods, ensuring accurate inventory records.
Optimizing Your Counts With Inventory Management Software
Adopting modern inventory management and Warehouse Management Systems (WMS) simplifies the cycle counting process.
Leading inventory management systems offer automated cycle counting functionality, providing daily instructions to counters and reviewers through user-friendly checklists and dashboards.
Additionally, these software solutions support cycle counting on handheld devices such as smartphones, streamlining the process and enabling real-time updates of inventory numbers.
Furthermore, inventory management and WMS systems highlight discrepancies between expected and actual counts. This facilitates recounts and enables inventory adjustments in the general ledger. It transforms a laborious and time-consuming task into a straightforward and efficient process.
Streamline Inventory Counting With TranZact
Cycle count vs physical inventory are two distinct methods for inventory management, each with its own advantages and considerations. Businesses can choose any of these inventory counting approaches to suit their needs.
TranZact's inventory analysis and inventory management software provides you with real-time insights into inventory movements. By providing a single dashboard for all inventory-related tasks, it assists you in simplifying the end-to-end inventory counting process. It supports you in enhancing inventory transparency and minimizes losses.
FAQs on Cycle Count vs. Physical Count
1. What is cycle counting?
Cycle counting is a continuous process of regularly counting a subset of inventory items throughout the year to ensure ongoing accuracy.
2. What is a physical count?
A physical count is a comprehensive inventory count that involves physically inspecting and counting all items in stock at a specific point in time.
3. What are the benefits of cycle counting?
Cycle counting offers several benefits for inventory management. It allows normal business activities to proceed without major disruption while providing real-time monitoring of key SKUs or manufacturing parts. It enables companies to optimize their cash deployment and make informed decisions.
4. Which method is more time-consuming physical or cycle count?
Physical counting is generally more time-consuming, as it requires counting the entire inventory in one go, which can be a significant undertaking.
5. How does cycle counting uncover inventory discrepancies?
Cycle counting detects discrepancies through regular, ongoing counts, enabling prompt identification of issues that can be addressed before they escalate.
6. Is cycle counting superior to year-end physical inventory?
Cycle counting is increasingly viewed as a superior alternative to year-end physical inventory counts due to the challenges posed by the size and complexity of warehouses. Traditional year-end counts are labor-intensive and time-consuming, requiring extensive time and resources. On the other hand, cycle counting offers a more efficient and appealing approach for businesses.
7. How often should you conduct cycle counts?
Cycle counting is typically performed daily, with each day's count focusing on a specific portion of the overall inventory. This approach allows businesses to distribute the counting workload evenly throughout the year and avoid the burden of conducting a comprehensive count simultaneously.
8. Which method provides updated inventory information?
Cycle counting provides more up-to-date information as it involves ongoing counts, allowing businesses to make timely decisions based on accurate inventory data.
