According to Generally Accepted Accounting Principles (GAAP) and IRS rules, it’s expected that businesses that store items in a warehouse conduct an inventory count periodically. There are two main options used by companies today: the physical inventory process and cycle counting. There are benefits of inventory cycle counting and physical inventory counts, but one of these methods may be the better option for you. Here’s what you need to know about cycle count vs. physical inventory and how to decide which is best for you.
What Is a Cycle Counting Process?
A warehouse cycle counting process is an inventory auditing procedure that is a part of an inventory management solution. In this procedure, a small subset of inventory in a specific location is counted on a specific day. The cycle counting method is a popular solution for inventory management that enables businesses to count multiple items within the warehouse, without needing to count the entire inventory. This works because a certain number of items infers the count for the entire warehouse. If there happens to be an error found in this sampling technique, errors could also be expected to occur for other items in the warehouse. The three types of cycle counting include the following:
Control Group
This method is used to count items that will provide the best results and will focus on a small number of items that are counted several times in a short period. This repeated count process will reveal any errors in the technique. If there are any errors, they can be corrected. The control group process is repeated until the technique is accurate.
Random Sample
This type of cycle counting is defined by the counting of items chosen as random. If a warehouse has a large number of similar items, a random amount can be selected to be counted. This count can be done daily so a large percentage of items in the warehouse can be counted in a shorter period of time.
ABC Analysis
This is an alternative to random sample counting. It used the Pareto principle as the basis, which states that for many events, about 80 percent of the effects come from 20 percent of the causes.
What Is a Physical Inventory Count?
What is the importance of a physical inventory count? This process is the actual count of the materials and products a business owns. It ensures that the numbers recorded in the company’s books match the actual number of items on the sales floor, stockroom, and warehouses. This in-depth count is usually conducted once a year, with smaller sample counts several times in the year. A physical inventory count may be needed to meet tax regulations or financial accounting rules. This method is extremely time consuming, especially for larger companies with more products, but with the implementation of inventory control systems and automation, the tracking and counting process can be much simpler. Here are some important steps to ensuring your physical inventory process is successful:
- Set count dates and notify all staff
- Determine who will do the counting (pair an experienced member to count and a trainee to record the quantity)
- Order the necessary supplies
- Take the opportunity to clean and organize your warehouse
- Break up the counting process to make it more reasonable
- Create a map of the warehouse to help your counters
- Divide the counters by specific areas
- Count as many parts as possible before the scheduled count date and mark what has been counted to prevent double counting
- Ship all the items you need to ship before the physical count begins
- Do not fill orders or receive inventory during this process
- Audit while workers are counting
- Print and review discrepancies
- Review successes and record the procedures
Cycle Counting vs. Physical Inventory: Choose the Best Inventory Accuracy Technique
Now that you can see the difference between cycle count and physical inventory, here are some important benefits of each, so you can make an educated decision on which option is right for you.
Cycle counting is beneficial if you are looking for a more cost-effective solution. There are less interruptions in operations and less complexity as well, since the process does not take up as much time. As a result, cycle counting saves money and allows for an annual review of each segment of products.
For organizations with a smaller inventory, doing an annual physical count is the better option. It allows you to start the new year with a clean slate, ensures a more accurate count of products, and maintains focus while keeping inventory as a priority. If your organization has a large amount of stock, this option will be more time consuming, less flexible, and freezes your inventory so you cannot perform operations as usual.
Hire APS Fulfillment, Inc., a Warehouse Fulfillment Company in Florida
Inventory accuracy is vital to your strategy because it provides you with reliable data. Accurate data allows you to make the right decisions and provides authentic communication between you and your partners. Instead of allowing your disorganized warehouse to ruin your operations and your customer relationships, start keeping track of it today. Keeping track of inventory in real-time can be a challenge, but there are companies that can provide the solutions you need.
If you want to learn more about the benefits of our inventory management system or want help improving your warehouse operations, APS Fulfillment, Inc. can help you. Our professionals provide our clients solutions to meet their warehouse organization needs. We provide services such as real-time inventory management, e-commerce fulfillment, direct mail marketing, fulfillment solutions, fulfillment markets, and more. There are endless benefits to working with a third-party logistics company that uses the best quality software systems to manage your warehouse, so if you’re looking for the right company, look no further than APS Fulfillment, Inc. You can contact us by e-mail at [email protected] or by phone at (954) 582-7450.
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