Inventory Cycle Counting: Best Practices to Ensure Accuracy

When it comes to inventory accuracy, what you don’t know can hurt you. Getting it wrong can send financial reporting awry and disappoint waiting customers with an unexpected out-of-stock scenario. That’s why it’s crucial to ensure inventory cycle counting on a prescribed basis. Two operations experts at FIDELITONE share their insights and best practices cycle counting and inventory accuracy.

The flow of products through a warehouse can involve many steps, and errors can happen, says Chelsey Hehn, Field Operations Specialist at FIDELITONE. A worker could pull the wrong quantity or make an error in shipping. Errors are not always obvious, as when the item count in a sealed inbound carton is wrong.

“Inventory has dollar value, so it’s very important that it is accurate,” explain Sonia Medrano, General Manager at the FIDELITONE Wauconda, IL warehouse. When auditors come on site, they not only ask to see physical inventory counts corresponding to data records; they typically request copies of cycle counts conducted throughout the year and documentation of the SOPs in place, she notes. “If you’ve been conducting cycle counts throughout the year, you shouldn’t expect major adjustments at the time of an audit—and auditors love that,” she adds.

Establish cycle counting SOPs

SOPs for cycle counting need to include defined roles and responsibilities as well as processes, safeguards, and controls with corrective actions, says Medrano. Most clients prefer to use the ABC method, in which item value and turnover rate are weighted to identify items for most frequent counting. “An ‘A’ item would be high-moving, high value.” It’s important to establish a frequency and schedule and ensure it is followed. Ongoing cycle counts can be staggered in a structured schedule.

In addition, a client can request that certain SKUs be counted on demand to stay in control as they approach high-volume sales periods such as Black Friday. Counts may also be triggered by minimum-quantity alerts that generate emails and appear in every login to the WMS, explains Hehn. Cycle counting parameters are customized to each FIDELITONE client based on their defined needs and SLAs.

Team approach

A team approach to cycle counting introduces additional levels of control and leads to continuous improvement. Medrano stresses, “It’s important that your leadership team be involved.” When a variance is found during the cycle count, a second person has to re-check the count before a correction is entered. And per defined thresholds, the FIDELITONE process requires on-the-spot analysis: What is the root cause of the discrepancy? What steps need to be taken now? If there’s a problem, the point is to track it down and correct it for continuous improvement of inventory systems and processes.

Transparency matters, too, says Hehn. “If there is an inventory issue, we reach out to the client the same day. We believe in communications.” Following a cycle count, a client receives a full inventory report identifying any variances and adjustments. Variances are measured against an established variance tolerance for ongoing control and accountability.

Multi-location inventory accuracy

Working from an established game plan is even more crucial for retailers who operate out of multiple warehouse locations, says Hehn. In her role, she provides process training and support to teams at multiple warehouse locations. “I travel around the country and I like to make sure the same standards are met everywhere.” It’s collaborative, she adds: “If they need help, we’re here to help.”

High-level orchestration of SOPs translates into consistent results from every location and reliable composite inventory reporting to drive decision-making. For FIDELITONE clients, real-time inventory visibility is available through a private client portal.

Performance metrics

Inventory accuracy is the foundation for performance in many other steps through the flow of products. The gold-standard metric is inventory accuracy. A best-in-class gauge is 99.9% inventory accuracy. This is a metric you want to know, follow, and use.

Increase inventory accuracy

Warehouse operations that don’t have a structured count schedule backed up by strong systems, training, and controls can see inventory errors mount into “a big ball of issues,” says Hehn. “Operations that don’t follow cycle counting systems can become overwhelmed when they try to perform a one-off physical inventory.” Her advice: “Do it—do it often,” and apply a proven set of SOPs for ensuring ongoing inventory accuracy. Involve the team, and make accountability part of your culture. Medrano views effective cycle counting as an essential step that empowers companies to move to the next level of business success. Learn more about factors that affect inventory accuracy, and find out what should be in an SLA for order fulfillment.

How can we help you implement best practices in cycle counting? Reach out to speak with an expert.