The cycle counts Inventories are a method to improve the accuracy and reliability of inventory control and that consists of counting warehouse stocks, grouped according to a criterion, so that they are counted frequently and periodically, instead of carrying out a single physical inventory. annual.
References or SKUs (stock-keeping units) are classified and grouped in such a way that a manageable number of references are counted daily, depending on the time and available human resources. After a certain number of days, all references in a group will have been counted and the cycle will be repeated for that group. The number of times a reference is counted per year is called the count frequency.
Items that represent a high inventory value should be counted more frequently than lower value ones, since an inaccuracy in your inventory control will have a greater impact on the business. Those references that participate more frequently in transactions and maintenance tasks should also be counted more frequently, since they will be more exposed to inventory errors. In the case of warehouses that handle perishable merchandise, SKUs with shorter life times will also be candidates for a higher frequency of counting.
It is important to note that the purpose of cycle counts is not only to verify the actual stock quantity with the stock quantity recorded in the warehouse management software, but also to detect any errors, identify their causes and, with a philosophy of continuous improvement, go correcting them so that they do not occur again. In this way, as the counting cycles continue, the inventory control system will become increasingly reliable. In turn, this will make the counting process itself more and more easier in subsequent cycles.
When cycle counting of inventories is implemented correctly, it is common to achieve an accuracy in the inventory records of more than 95%, and it is possible to reach a reliability of over 98% or 99%. In fact, cycle counts are one of the methods to combat phantom inventory. The advantages of greater accuracy in inventory control are obvious: higher productivity, higher profitability, and better customer service. In addition, high reliability in stock control is essential when working with management methodologies based on reducing inventory levels, such as Just-in-time logistics. But for cycle counts to be efficient, it is necessary to apply new technologies to the warehouse.
In the first place, the use of automated order preparation systems such as light guidance and automatic dispensing from ATOX Technological Solutions, combined with intelligent roller conveyors, is recommended. Thus, inventory errors due to picking operations are minimized and, in turn, the work of warehouse personnel is optimized by preparing orders at a higher speed, with which human resources can be allocated to cycle counts more efficiently.
An ERP software with inventory control modules, or a specialized WMS system, will provide the functionality to classify SKUs, organize counting cycles, and allow users to validate and correct stock data in the system. To expedite the tasks of the warehouse personnel in charge of counting, the system guided by light ATOX Soluciones Tecnológicas, in addition to optimizing order preparation, can guide operators efficiently to each slot on the shelves where they can perform the next count, verify the amount of stock, and serve as an alternative interface to communicate the correction to the ERP.
Once a cycle count system has been implemented, at the end of each year all stocks will have been counted. The most important references for the business will have been counted several times periodically within the same year. Thanks to this, the traditional process of carrying out the annual physical inventory, normally behind closed doors and with a great consumption of time and human resources, is no longer necessary.
Implementation of cyclical inventory counts
In order to implement a cycle counting system, a small group of references or SKUs (stock-keeping units) is usually selected, but which serve as a representative set of all merchandise in the warehouse. In other words, this group will include some references with a high level of turnover, some references with a low level of rotation, some references for large-volume products, some references for perishable merchandise, etc.
With a reduced group of references, it will be possible to start using cycle counting on a small scale in a first phase. The cycle count system for that control group is run until the count cycles are completed several times. With each cycle, the first errors of inaccuracy in inventory control will be detected, the causes of these errors are analyzed and they are solved. In this way, when the cycle counts are implemented for all the references, the main errors should already be solved.
Once the first phase with a control group is completed, a general cycle count system is implemented for the entire warehouse. Every day part of the days will be reserved to carry out part of the count, for example at the beginning of the day, or during the shifts with less activity. References and locations will be indicated to warehouse personnel to carry out the count, which can be done with blind counts or verification counts.
The references will be classified in some way and different counting frequencies will be assigned according to their value, characteristics, location, etc. In general, SKUs that have a higher turnover level should be counted more frequently, since they will be involved in transactions more often (order preparation, returns, receipt of merchandise, etc.). reverse logistics, etc.) and, therefore, they will be more exposed to the fact that the real state of their stocks and the state registered in the computerized system may become out of sync and cause errors.
There are different methods of cycle counts, depending on how the references are classified and the counting frequencies are assigned.
One of the simplest methods is random sorting. Due to its simplicity, it can be implemented in warehouses that do not have sophisticated warehouse management software, but at the cost of less efficiency. Another simple alternative is classifying the references by categories (by types of articles, or by manufacturer, etc.). In warehouses where the references do not usually change location, for example, in temperature-controlled warehouses, a classification by zones can be carried out.
Another of the strategies is through cyclical counts with location auditing, called location audit cycle counting in English. In this case, the warehouse is logically divided into areas, which can be by aisles, or by rack modules, or by levels, etc. The advantage of this method is that during the cycle count it is used to verify the slotting, checking that the SKUs are stored correctly in the rack locations assigned to them. In this case, it is especially indicated to use the ATOX light-guided system to lead warehouse operators to the correct locations where to carry out each count.
But the most common system and which is generally the most efficient is cycle counting with ABC classification.
ABC Cycle Counts
ABC cycle counts are based on an ABC classification of inventory. Applying the Pareto principle or 80-20 rule, SKUs are classified according to their inventory value or frequency of use, so that they will be organized into three categories: A, B and C.
Category A SKUs should be counted more frequently, for example once a week or once a month (this will depend on the number of SKUs to be handled, available human resources, economic value of the stock, etc.). Articles classified in category B will be counted less frequently than those in category A, for example once every quarter. Finally, the references included in category C will be counted less frequently than those in B, for example twice a year.
In this way, the resources used in the cycle count are focused on the merchandise that has the greatest impact on the business, either due to its economic value or its turnover levels. As new technologies evolve, inventory controls will be increasingly based on the Internet of Things and will become true real-time inventory systems. Machine learning techniques will make it possible to apply artificial intelligence to the classification of references and to have predictive techniques that further increase the accuracy and reliability of inventories.
But together with the most sophisticated technologies, it will continue to be necessary to start from an adequate design of the warehouse layout, using the most appropriate types of metal racking and storage systems for each type and level of load, turnover levels, etc.
Inventory control of the future
that provide an efficient starting point for high-performance intralogistics. The combination of metal racks from ATOX Storage Systems with the automation systems from ATOX Technological Solutions, in continuous evolution, will continue to be the physical layer of the warehouses of the future, which, coordinated with increasingly sophisticated WMS systems, will allow us to respond to the challenges of modern supply chains.
ATOX has helped to optimize the intralogistics of clients from most business sectors at an international level, designing and manufacturing storage solutions tailored to the needs of each warehouse, with quality and excellence in service as hallmarks of international recognition.
Contact us to discover how to optimize the space in your warehouse, improve the performance of handling tasks and maximize the profitability of your supply chain.