Inventory management is a necessary function of ecommerce distribution. Ensuring your inventory count is accurate and up-to-date is essential, but it’s not always easy. One method we use at Speed Commerce is called cycle counting.
What is a cycle count, and how does it impact order fulfillment?
Cycle counting is a process where warehouse staff counts a small inventory section at regular intervals to forecast the total amount of inventory of that item. The nice thing about this method is that it can be completed during normal business operations, takes less time, and can target only certain items if a full inventory count isn’t needed. There are some limitations, though. Best practices in inventory management suggest that cycle counting should only be used by warehouses that have a 95+ percent inventory accuracy metric. If you’re looking to correct serious errors with your inventory, cycle counting is not the way to do it.
The statistical method behind cycle counting is popular in other applications besides inventory management. For example, researchers sample opinions from a subset of the population and then use that metric as the representative opinion of the larger group. Pollsters cannot speak with every single person in America when they measure the President’s approval rating each month. Instead, they survey a statistically representative group and use these results to estimate overall opinions.
While cycle counting sounds like a quick, cost-effective way to keep track of inventory in a vast warehouse, it’s not a long-term solution from an accuracy standpoint. Retailers should plan to perform a full physical inventory count at least once per year, if not bi-annually. Although it takes a lot of time and manpower (and may require pausing fulfillment operations), these full counts are essential to ensuring your inventory levels are accurate. In the end, accuracy saves money on unnecessary inventory orders and prevents lost sales due to unforeseen stock shortages.
The keys to consistent long-term inventory management are accurate receiving and replenishment processes and making sure to follow that process. Ensure that all received inventory is first checked against the vendor purchase order and having set standard operating procedures for replenishment activities (specified times/days, a mapped ‘path’ for every replenishment, and so on).
If you’re new to inventory management, never try to replenish product before receiving it. Picking product immediately after it’s received without putting it into inventory is called cross-docking, which is an entirely different fulfillment strategy and requires a lot of due diligence and proper set-up to do it effectively.
Cycle counting is a great method for estimating the remaining inventory to avoid overselling or over-ordering more stock.