In this article
Talk to our experts- Cycle counting
- Cycle counting is an inventory counting method in which a portion of the inventory is counted daily, weekly or monthly until the entire inventory has been counted over a period of time. Each count is compared with the inventory record, differences are researched, and the record is corrected, without shutting down the whole operation.
Also called: cycle count, inventory cycle counting
How it works
The US Government Accountability Office (GAO) studied how leading private sector companies count inventory. Its guide says cycle counting supports the reliability of the on-hand quantities used in management decisions and financial reporting, and normally increases operational efficiency. It needs a perpetual inventory system, which records receipts and shipments and keeps current item balances to compare counts against.
A cycle count from plan to corrected record
Group items by dollar value, activity or criticality, then set how often each group is counted.
Choose items row by row or by warehouse area, at random, or weighted toward higher dollar value items.
Counters record what they find. In a blind count, they don't know how many items are supposed to be there.
The counted quantity is compared with the on-hand balance in the inventory system.
Variances that meet management's criteria are researched to find and correct their cause.
The on-hand balance is adjusted and inventory record accuracy is measured.
Locations running cycle counts typically keep inventory moving and use other controls: counting in a slow period, holding the selected items still on count day, and tracing movements through transaction histories.
Cycle counting vs. wall to wall counts
A wall to wall count counts the entire inventory at one point in time, usually at the end of an annual or interim period, and is used mainly to validate the inventory reported for financial reporting. Every leading location in GAO's study that ran wall to wall counts shut down warehouse operations during the count. A cycle count spreads the work across the year instead. Some companies use both, for example running wall to wall counts until record accuracy is high enough to support cycle counting.
How often to count
GAO's leading locations set count frequency by segment, using dollar value, activity or turnover, criticality and historical accuracy. Locations that segmented by dollar value counted higher value items more often. One location split its inventory into four segments: the top 10 percent counted four times a year, the next 20 percent three times, the next 30 percent twice and the remaining 40 percent once.
Results are measured with an inventory record accuracy rate, the degree of agreement between the inventory record and the physical count. Six of the eight leading locations running cycle counts set accuracy goals between 95 and 98 percent.
Example
A distributor carries 2,400 SKUs and copies that four-segment schedule:
- Top 10 percent: 240 SKUs x 4 counts = 960 counts a year
- Next 20 percent: 480 SKUs x 3 counts = 1,440 counts
- Next 30 percent: 720 SKUs x 2 counts = 1,440 counts
- Remaining 40 percent: 960 SKUs x 1 count = 960 counts
That is 4,800 counts a year, or 20 a day across 240 working days. If 19 of a day's 20 counts match the record, accuracy that day is 19 / 20 = 95 percent, and the one variance goes to research.
On Shopify
Shopify calls a scheduled count a stock count. You create it on the Inventory > Stock counts page of your Shopify admin, choose one location and the products to include, and add products by searching, scanning barcodes or importing a CSV file.
- Review: the Expected and Counted columns show the expected and counted quantity for each product so you can identify discrepancies. You can reject an item's count to recount it in a new stock count.
- Approval: approving a count updates inventory levels from the counted quantities, records each change in the adjustment history, and can't be undone.
- Point of sale: at locations with a Shopify POS Pro subscription, staff can perform a stock count in the Shopify POS app and request a review.
- Choosing what to count: Shopify's ABC product analysis report grades each variant by its share of revenue over the last 28 days, with A-grade products collectively accounting for 80 percent of revenue.
How Uncap helps
Uncap's guide to multi-warehouse inventory visibility separates the two jobs. Inventory management tools are built for the warehouse team, the purchasing manager and the person doing cycle counts. Visibility is whether the buyer and the order-routing logic see accurate, location-specific stock. In that model the ERP or warehouse system stays the source of truth, and Uncap Connect syncs inventory, pricing, and order data between the ERP and the storefront in real time.
Sources
Frequently asked questions
What is meant by cycle count?
A cycle count counts a portion of the inventory, daily, weekly or monthly, until every item has been counted over a period of time. The counted quantity is compared with the inventory record, and variances are researched or adjusted under management's criteria.
How often should a cycle count be performed?
It depends on the item. In GAO's study, locations that segmented by dollar value and activity counted the higher dollar items more often, usually four times a year, and low dollar value items once a year.
What is the 80/20 rule for inventory?
Shopify's ABC product analysis report shows the split in practice: A-grade products are your top selling products that collectively account for 80 percent of revenue, B-grade the next 15 percent and C-grade the last 5 percent. In GAO's study, locations that segmented by dollar value counted higher value items more often.
