INVENTORY MANAGEMENT: Counting on accuracy

Cycle counts can give you a better handle on your inventory status

Many catalogers view shutting down their warehouse operations once or twice a year to take a complete inventory as a necessary evil. But there is another, and possibly better, way. Rather than having to close down their operations, a number of mailers are adopting an inventory measurement procedure called cycle counting.

Cycle counting allows you track the amount of inventory in your warehouse on a more frequent basis. In lieu of taking a full blown physical inventory, cycle counting lets you take stock of goods on an ongoing basis, counting some SKUs more often than others.

Although cycle counting methods vary in terms of frequency – some businesses tally their merchandise as often as once a day – most catalogers divide their products into A, B, and C categories. The best selling products fall under the A category and are counted more frequently than the average selling B products. In turn, merchandise in the B category is counted more frequently than the C products – marginal sellers that may get counted only once a year.

By tallying your best selling products more often, you’ll have a better handle on what’s in stock, says Haskell, NJ-based operations consultant Bill Kuipers. This will then cut down on backorders, boost first time fill rates, and ultimately improve customer satisfaction.

Santa Barbara, CA-based Magellan’s, the $25 million travel accessories cataloger, has reaped great benefits since beginning cycle counting two years ago. “Because customers need our products quickly for travel, we have to keep backorders to a minimum,” says chief operating officer Robert Manning.

To avoid backorders, the company in the past often had more items in stock than it needed. “It used to be that we kept up to 10-15 units of a product in stock,” to safeguard against running out, Manning says. But now that the company counts its merchandise more frequently, “we can let that same product drop to about four or five units. And by not tying up the cash in extra inventory, we can drop the savings right to our bottom line.” He says cycle counting allows Magellan’s to keep 10%-12% less in overall inventory, without affecting sales.

Burlington, VT-based gardening products cataloger Gardener’s Supply Co. has also seen a rise in accuracy as well as a decrease in backorders because of the cycle-count program it instituted a few years ago, says distribution manager Peter Gaylord. “We used to do a complete shutdown and get everyone involved, but we found that not all employees had the same level of detail when it came to counting,” Gaylord says. “So we were correcting our inventory inaccuracies throughout the year, and we weren’t really getting accurate counts.” With cycle counting, a dedicated staffer now checks about 10 SKUs a day, verifying the physical merchandise against a report generated by Gardener’s Supply’s inventory management system.

Norwich, VT-based baking products cataloger King Arthur Flour does daily section counts in its 30,000 sq. ft. warehouse. “By counting inventory more often as part of our daily activities, we don’t have to shut down, and we don’t have to pay overtime,” says president Steve Voit.

Weighing your options

Should you be cycle counting? Operations experts say there’s no real rule of thumb as to the level of sales or number of SKUs carried to determine the viability of cycle counting for a specific company. But according to Roy Strauss, vice president of Woodbridge, NJ-based operations consultancy Gross & Associates, you might consider cycle counting if you stock fast moving items and need to keep better track of them. Also, if you sell valuable merchandise that tends to sit in the warehouse for long periods of time, cycle counting may help you detect or prevent theft.

Of course, some catalogers still find it easiest to block out a designated time of year for inventory, rather than adding to their day to day responsibilities. New York based wood crafts cataloger Garrett Wade prefers to count all 5,000 SKUs in its warehouse on a quarterly basis, says Craig Winer, systems and operations manager. “Since we put our inventory counting system in place, counting our inventory takes about half of the day,” he says.

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