Did you happen upon this article because you were looking for information regarding bicycle inventory? Well, you're in the wrong place.
Stay anyway, as cycle stock inventory is one of the most important inventory management techniques. It is the portion of your stock that will make or break your business whether you use the B2B business model or use a direct to consumer business model (see what is D2C). So, it's important to be able to track and understand it.
We'll walk you through the basics of cycle inventory (see what is inventory), the average time for cycling, and give you tips on how to manage yours.
Cycle Inventory Definition
Cycle inventory, or cycle stock inventory, is the portion of inventory that a seller cycles through to fulfill regular sales orders. It represents a part of a business's standing inventory. Cycle inventory is used and replaced by new items, or turned over. It is similar to tracking your sell through rate with a few added steps. There are a few differences between cycle stock in B2B vs. B2C businesses, so make sure you know what works for yours.
Cycle Inventory in Operation Management
Cycle inventory in operation management can make or break warehouse operations. Maintaining proper inventory control is a part of every operations manager's job. If inventory comes in or goes out at an unacceptable pace, operations can become stalled or overwhelmed. That's why many depend on ABC inventory analysis.
Supply Chain Cycle Inventory
Cycle inventory in supply chain management affects businesses in the chain as it directly impacts the goods they have on-hand and their ability to fulfill orders. Supply chain cycle inventory issues are caused by a number of factors.
- Demand. If demand rises or falls, the amount of inventory moving in the supply chain is directly impacted. Understanding demand changes can allow a business to react appropriately to increase sales and limit costs. Improper order management based on incorrect data can cause a backlog that can quickly lead to losses.
- Order lead time. The time it takes between an order being placed and the product arriving (see lead time definition) can cause issues with cycle inventory. It is one of the biggest causes of backordered items in inventory management. Investing in route optimization software may help mitigate these issues.
- Storage Costs. The cost of storing inventory rises and falls based on inventory levels and the cycle length.
Inventory and Warehousing Cycle
Warehouse management and the inventory cycle are directly related. The flow of goods in and out are a warehouse manager's primary duty. This means that understanding the business's inventory cycle time is paramount. It will allow you to limit warehouse costs while maximizing the amount of sellable inventory.
What Is Inventory Cycle Time?
Inventory cycle time is the frequency of inventory replacement. That is, the amount of time taken from the start to finish of inventory use. In retail, this is the time between a product arriving in your warehouse and it being sold. In manufacturing, it is the time taken from beginning production to the end of manufacturing activities. In simpler terms, it is the amount of time it takes raw materials inventory to become finished goods.
Cycle Count Inventory Definition
Cycle count is a part of inventory auditing where only a small portion of inventory is counted on a given day. This is in contrast to a full audit where every item in the inventory is counted. Cycle count is a sampling technique used to see how accurate inventory records are.
What Does Cycle Count Mean in Inventory Management?
In terms of the inventory management process, cycle count is taking sample inventories to cross-check inventory records. Though not a totally accurate measure for the full scope of inventory, cycle counts highlight any discrepancies in product counts. This alerts you to potential inventory issues and signals that it may be time to take a full inventory.
Physical Inventory vs Cycle Counting
Physical inventory is taking a manual count of every product in your inventory, while cycle counting is a much smaller count of inventory. Cycle counting has many benefits over a traditional physical counts of inventory.
- Saves time and labor. Since cycle counting deals with far fewer products, it takes less time and doesn't require many staff members.
- Reduces inventory variance more quickly. If there are issues with shrinkage and variance, a physical inventory wouldn't discover it for at least a few weeks. Cycle counting can uncover these issues within a few inventory days.
- Doesn't require business shutdown. Full inventory count means all employees must spend their time taking inventory and no other business can be down. Cycle counting can be done during regular hours without interfering with operations.
- Happens more often and on specific products. If there is a particular good that you are concerned about it, you can easily cycle count it on a regular basis limiting risk.
Cycle Inventory Management Tips
Cycle inventory management is important to ensure the correct products are being tracked and that no time or energy is wasted.
Here are the best ways to ensure you're doing it correctly:
- Prioritize important products. Don't waste time cycle counting rarely-used or sold products. Pick the most important items and have them regularly counted to avoid any surprises. For example, if you participate in kitting, you would choose to track the kits themselves, not the individual parts.
- Do counts as often as possible. Since cycling counting takes such little time and effort, do it as often as possible. This will allow you to stay on top of your inventory without having to shut down for a full physical inventory.
- Have a plan. Don't just count at random. Think through when, where, and how you want to count your goods so you don't waste valuable time or money.
- Budget appropriately. Though cycle counting costs far less than physical inventory, costs still rise when your business grows. Set aside the right budget to ensure the counts are done regularly.
- Assign counting to one or two employees. You don't have time for inventory counting and you don't want to train everyone to do it and take them off their other tasks. Pick one or two employees who regularly participate in cycle counting and you'll always have the data you need to succeed.
What Is the Primary Lever to Reduce Cycle Inventory?
The primary lever to reduce cycle inventory is to reduce lot sizes. Smaller lots require less work and don't allow for as many new goods to arrive before selling the current goods. Too much safety stock is the primary cause of cycle inventory length being too long.
Managing Inventory for Short Life Cycle Products
Short life cycle products need to be tracked more often to ensure reordering is done in a timely manner. Cycle counts are the best way to manage short life cycle products as they can regularly be monitored and any shift in demand can be reacted to more quickly. Sales trends from these cycle counts also give insight into inventory level shifts and can be used to market the goods and optimize profits.This is particularly important if you receive or send inventory at a bulk shipping.
Inventory Accuracy Cycle Counting
Cycle count accuracy measures the percentage of cycle counts that did not require any adjustments. This means that the cycle counts matched the numbers from your inventory tracking. The higher this number is, the less variance and shrinkage in your inventory. If there are adjustments made after cycle counts, you need to review your inventory methodology and discover where the issues are originating.
You should aim to have a 100% cycle count accuracy, but there is usually a small amount of inaccuracies for any business. Find a number you consider reasonable for your business and aim to stay at or above it. It's an important inventory KPI to control.
Average Cycle Inventory Formula
To find your average cycle inventory, you just need to use a simple formula.
Here is the formula you'll need:
Average Cycle Inventory = Lot Size / 2
The Cycle Of Life
The inventory cycle has a direct impact on your business's ability to fulfill orders and make a profit. Tracking this cycle can keep you ahead of any issues that may arise and cycle counting is the best way to do this.
If you consistently find that your inventory count is too low, you may want to look into just in time inventory so you are regularly restocked. Or use consignment inventory or dropshipping (see how does dropshipping work) to skip this process altogether.