An accurate inventory is essential for any successful business and there are two types of inventory count that can be used to ensure accuracy: cycle count and physical inventory. Cycle count is the most commonly used method for regular inventory management and is used to count a sample of items from the total inventory. Physical inventory, on the other hand, requires a complete recount of all inventory items. Both methods can be used to ensure accurate inventory and can be beneficial to a business depending on the size of the company and the goals of the inventory management team. In this blog post, we will explore the differences between cycle count and physical inventory and discuss the advantages and disadvantages of each. We will also explain which inventory method is best suited for different types of businesses and provide tips on how to implement an effective inventory management system.
Cycle Count – Whiteboard Wednesday
What is a physical inventory count?
An accurate count of all the items in your warehouse, stockroom, and other locations is called a physical inventory count. You schedule specific days to conduct a thorough count to make sure the amount of inventory on your shelves matches the number your inventory management system displays. Physical counts should only be performed once a year because they take a lot of time. They may help meet financial accounting rules or tax regulations.
Even when a company uses radio frequency tags or inventory scanning technology, physical inventory counts frequently cause disruptions to regular business operations. Due to this, some businesses might decide to halt certain operations, like receiving and shipping, until the procedure is complete. These actions can help guarantee your physical count is successful, regardless of how big or small your inventory is:
What is cycle count?
Cycle counting is a procedure used for inventory auditing as part of inventory management. You continuously count samples during this process within a predetermined time frame. You decide how frequently to count the items in your warehouse. This avoids the time-consuming requirement of counting everything at once. Some businesses might count the same items more than once to check whether different people arrive at the same conclusions. This step is essential because it can be used to find and correct any errors in the counting process.
Some businesses employ internal or external auditors who continuously monitor and suggest adjustments to the various counting techniques to guarantee a cycle count is accurate. To determine which is more dependable, they might ask your team to use them at various points during inventory verification. They advise using it once it has proven to be effective, and they further ensure that your team does so throughout. The cycle counting techniques that are frequently applied in inventory auditing are as follows:
Cycle count vs. physical count
While both techniques enhance inventory management, there are some significant distinctions between them that have a big impact on regular warehouse operations, such as:
Scheduling
When a business has a dedicated team to count the items in its warehouse and stockroom, cycle counts can occur every day. It can also occur on specific days in a week. No matter how you choose to use it, cycle counting happens repeatedly. Companies must commit to performing cycle counting according to the scheduled times for it to be successful. On the other hand, a physical count is conducted once a year and may interfere with ongoing business as usual.
Items counted
Businesses have the flexibility to count various items at various times thanks to cycle counts. You can select your sample at random or use a predetermined method to decide what to count. You count all items at once during the physical count. The process ends after tallying all items.
Level of disruption
Most of the time, cycle count implementation is similar to other standard business operations. Due to how infrequently it disrupts business operations, you might not always notice its effects. Only when you see members of your team doing the counting do you realize it is happening. Some operations are probably stopped while a physical count is taking place. Physical counts are labor- and time-intensive, and if staff are involved, certain operations, like shipping and receiving, may be slowed. Some businesses employ temporary workers to maintain full operations throughout the physical count.
Level of flexibility
Companies can approach inventory verification in various ways thanks to cycle counts. They can count by category, quantity, or value, for instance, by concentrating on the items that have the highest value in the house. With a physical count, you can begin by concentrating on particular items, but you still need to count everything within the allotted time.
Types of companies
Cycle counts favor large businesses over small ones that have large inventories. They gain from routinely performing cycle counts because they might not have the time to perform a physical inventory. An annual physical inventory may be more convenient for small businesses with limited inventories than spending more time on cycle counts. Companies with large inventories may schedule time to complete physical inventory counts since they may comply with IRS regulations and generally accepted accounting principles.
FAQ
What is the difference between cycle count and physical inventory?
A business uses cycle counting to periodically count tiny samples of its inventory throughout the year. Cycle counting differs from physical inventory counting, which usually entails tallying all of the company’s stock on a quarterly or annual basis.
Why is cycle counting a better way to audit inventory records than an annual physical inventory?
If you want a more affordable solution, cycle counting is helpful. Operations are less frequently interrupted, and there is also less complexity because the process is quicker. Cycle counting reduces costs and enables an annual review of each product category as a result.
What is a physical inventory count?
Companies use cycle counting as a check and balance to ensure that physical inventory counts match inventory records. This approach entails conducting a routine count and documenting the adjustment of particular products. Over time, they have counted all their goods.
