While preforming an inventory count is generally not at the top of anyone’s list of favorite things to do, it is still a critically important task in managing what is typically your store’s single largest expense—inventory. When working with retailers I find that the majority of stores still preform an annual inventory. Taking an annual inventory is a sufficient practice, but it has its drawbacks. Performing an annual inventory could mean closing your store the day of inventory, paying team members overtime to cover a very long day of counting everything, and, if you are not very careful, you may end up with an inventory count that is less accurate than when you started. For these reasons we recommend cycle counting.
Cycle counting is the process of continually validating the accuracy of actual inventory in the store compared to what your point-of-sale system shows on hand by regularly counting portions of your inventory. By counting a segment of your inventory on a daily or weekly basis, every item in your inventory is counted at least one time per year. Cycle counting is used to identify inventory errors, research the root cause of any errors, eliminate the root cause for errors, and correct inventory variances.
A common practice for setting inventory cycles is called A,B,C inventory. Inventory is divided into three levels.
A = Highest sales velocity items – Count several times per year
B = Medium sales velocity items – Count 2 times per year
C = Slowest sales velocity items – Count one time per year