How to perform inventory counting | Best Practices

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With the start of the new year upon us what better time than now to start thinking about inventory? Let’s start 2021 off on the right foot and change the way you look at completing your inventory. Year-end inventories can be a thing of the past if you incorporate cycle counts into your operation. Utilizing the tools we provide at retailcloud you can have more accurate records year-round instead of waiting until the end of the year to do the typical tedious full year-end inventory. With a multitude of backend reporting,  innovative and completely free inventory management apps we will help you through the process. Whether it’s running analytics on nGauge or utilizing mInventory for all of their inventory needs, we got you covered. Users can use our apps to scan inventory for your cycle counts using the camera on your phone and complete inventory adjustments all from the palm of your hand. 

Benefits of cycle counting?

There are many benefits that come along with cycle counting as opposed to doing the full end of the year inventory including:

  • Smaller subsets of counts, less time to spend counting. In the retail world, time is money
  • Accurate reflections of inventory throughout the year
  • By counting more often you find discrepancies quicker
  • No need to shut down your warehouse operation for long periods of time
  • Use the ABC method to focus on your higher value items

What is the ABC analysis method?

ABC analysis is an inventory categorization technique, that divides an inventory into three categories. These categories will be cycle counted throughout the year based on the rules set by ABC. Putting your focus on the higher valued items first. 

  • A-Items: Items that are high velocity, high value or items that tend to have inventory inaccuracy. These items are typically counted monthly/quarterly. These items will be roughly 80 percent of your velocity which is about 20 percent of your inventory. 
  • B-Items: Items that turnover regularly but may cost more than A-items. These items are typically counted a few times a year. They will consist of the next 30 percent of your inventory that make roughly 15 percent of your velocity.
  • C-Items: The rest of your inventory that is slow moving and contributes the least to your bottom line. These items are typically counted once per year and consist of the bottom 5 percent of your velocity which is roughly 50 percent of your inventory.

How to determine ABC

When determining your ABC categorization, it is important to factor in these 5 key pieces of data to give an overall idea of the value of each item. Once you have all these factors determined you will be able to assign them to the ABC categories based on their ranking in each field. 

  • Velocity– The velocity of an item is essentially how often a piece of inventory is “touched,” this includes all sales, receiving, transfers and adjustments of this piece. The more often a piece of inventory is moved it opens up the possibility of being lost or stolen. 
  • Investment in inventory– The investment in inventory is essentially the total dollar amount tied up in each piece of inventory. The higher the cost value is the higher you would want to rank this item which leads to it being counted more often. 
  • Number of units– The number of units is an important factor because the more you have on an item the more chance you have of losing or misplacing an item. It also will be beneficial in inventory management and finding overstocked items. 
  • Cost per unit- The individual item cost is an important factor because the higher value of an item even losing or misplacing one piece could really affect your bottom line. 
  • Inventory adjustments- If an item is being continuously adjusted out in large quantities it may be a red flag, therefore items with large adjustments should be factored into the 5 data points. 

How often to count and who to count?

Once you have your ABC analysis completed you will be able to sort your inventory based on these factors and determine which items you need to focus on first. Your A inventory items will be counted more often and can even be added into your warehouse staff’s day to day operations. Once you complete all of your A inventory items you can move on to the B category which should be counted semiannually, and then onto the C category, with the least effect on your business these items can be counted annually. Utilizing your own staff is best practice as they will have a vested interest in the inventory and the accuracy of their counts. They will also be familiar with the many tools retailcloud offers to make these tasks simple.

Checkout retailcloud’s inventory management app – mInventory – Click Here!

Checkout retailcloud’s analytics app – nGauge – Click Here!

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