Cyclical inventory is a great ally for your company's storage processes. Want to know what advantages it provides? Find out here!
Counting items in inventory is something that needs to be kept up to date. This practice is known in the business world as cyclical inventory and it is very important to ensure that things are in order in your business.
In this article, we will explain the main advantages and precautions to take with this system. Enjoy reading!
What is cyclical inventory?
Cyclical inventory refers to the practice of count inventory items periodically. This interval varies according to the company's needs and can be daily, weekly, bimonthly, among others.
This process is based on the company's own determinations, which determine where it is most important to start. Contrary to what many people think, cyclical inventory involves counting a specific group of products and not the entire stock at once.
To help you with this demand, it is essential that your company has a well-defined inventory control policy. Based on these guidelines, you will know where to start, having data related to the value of the products at hand, merchandise turnover, among other points.
Why is it incorrect to think that cyclical and rotating inventory are the same thing?
In theory, both processes are quite similar and have some points in common. The big difference is that in the revolving process there is a greater concern with generate administrative security for the business.
This reduces the risk of the company being caught off guard by the eventual loss of items from its inventory. It should be noted that these reasons for loss deal with issues that are beyond human control, such as accidents.
Because of its meticulous method, the rotating inventory needs to be done more frequently and to evaluate the stock as a whole to detect possible losses or defects. Doing this also causes an increase in time and money, as it is necessary to designate a group of workers to carry out the conference.
How to use cyclical inventory in your company?
In cyclical inventory, the ultimate goal goes beyond determining the value and quantity of products in stock, but rather detecting possible errors in your company's storage process. Therefore, preventing small details from turning into a big problem.
To implement this model, you need to have a timeline. This is the only way to keep to the deadlines and not compromise the final results. Another important point is that the cyclical inventory clears up any discrepancies between the physical and accounting inventory. But what difference does this make?
Knowing exactly what the actual situation of your company's inventory is, it becomes much easier to determine the real need for product renewal or requesting raw materials from suppliers. This ensures savings in the logistics part of the business.
Why are cyclical inventory costs lower?
Companies that do not use this model to organize their inventory can set aside one or more days of the week to count the items. In some cases, they choose to do this activity after work hours or during the weekend.
Either way, there is a financial loss. Since the stock is stopped during the conference, the products are not circulating — generating losses for the company.
Cycle inventory separates certain groups of items at a time for counting. This means there is no need to stop work altogether and close the company’s doors. You can continue to operate, albeit on a reduced basis.
What are the main advantages of this model for your company?
1. You don't need to close the company
As we explained, the cyclical inventory operating style does not require the company to close completely for the inventory check to be carried out in a thorough manner. Dividing processes means the business can continue operating, even if it is partial.
2. Simple and effective process
Simple actions, such as discarding useless boxes or fitting pallets with goods in a harmonious way, serve to make the space much more dynamic. In addition, an environment that only has the necessary items makes it much easier to count and calculate the final numbers.
3. Well-informed decisions
Having the certainty and security that the data generated by the inventory is reliable, the decision-making process for acquiring new products or raw materials becomes much more informed.
Unnecessary expenses are avoided and you are fully aware of which products are close to their expiration date. This way, you can think about more aggressive marketing actions and promotions to ensure that there is a turnover in stock and that this merchandise is consumed as soon as possible.
4. Maintain the quality of the products offered
Cyclical inventory allows the rapid detection of defective parts and these products are soon withdrawn from circulation. This way, you maintain the excellence acquired by your brand and continue to supply only products with the highest quality guarantee.
Discover good practices to apply this process in your company
To optimize your counts, you need to take into account a series of good practices. They ensure that the final result is as expected, take a look:
Keep the consistency
First of all, what you need to do is keep your counts consistent. If you have decided that certain groups of items will be inventoried every day, week, month, etc., stick to that plan and you will have the reliable data you need to work with.
Do not swap the position of products
Something that really confuses professionals who carry out the count is the occasional removal of products without prior notice or changes of location. To keep everything organized and practical, be careful to leave things in order.
Empower your team
Those responsible for coordinating and executing this meticulous process need to have a great ability to do so assertively. Therefore, provide all the necessary training and education for the team to carry out the work.
Have more than one person do the counting
Humans are always subject to error, especially when it comes to something as detailed as counting items. Therefore, it is recommended designate more than one professional for this function and reduce the possibilities of error.
Count on technology
Currently, there are various software that benefit companies and help to carry out an inventory in a more practical and intelligent way. Before using them, make sure that employees have the necessary expertise to extract the maximum benefits from this equipment.
Keep an eye on the results
A good manager knows the main events in the company. This is valid for the tracking the numbers, as metrics help to plan future business actions.
What criteria need to be considered?
Several criteria are useful for a more accurate count of stored items. The main ones include:
ABC Classification
According to the ABC classification, 80% of the problems are caused by only 20% of the factors. The method divides products into three categories:
-THE: essential items for your business revenue. In general, they represent only 20% of the goods sold by the company, but result in 80% of its profit.
-B: products of medium importance, where about 30% of products account for 15% of sales.
-W: most of the products sold by the company, around 50%, but which generate only 5% of revenue.
Use the ABC classification It is essential to understand what is most profitable for your business and what can be discarded or rethought.
XYZ Classification
Responsible for evaluating the criticality of the item, that is, determining how important he is to the company. Unlike ABC, the XYZ classification does not have a scientific basis, so it requires monitoring by experts who have in-depth knowledge of the company's products.
-X: low criticality items, that if they were missing would not put the company in a critical situation. Inputs X also have several alternatives for substitute materials.
-Y: medium criticality, that is, they can cause eventual stoppages in certain production sectors or cause damage to the company's assets, in addition to the physical integrity of employees. However, they can also be replaced by other items.
-Z: high criticality, since their absence implies an immediate stoppage of production and can put the assets or lives of employees at risk. They cannot be replaced and their acquisition takes time. An example of this was the truck drivers strike in 2018, which caused strikes across the country.
Rank 123
It refers to the difficulty with which inputs and raw materials are acquired by the company. It is classified as follows:
-1: complex procurement items, due to several factors that influence the completion of your purchase – such as legal issues.
-2: hard to acquire items, but which involve fewer legal issues.
-3: common items, fully available on the market and purchased without much bureaucracy.
PQR Classification
Determines the popularity of items present in the company's inventory.
-P: popular products with great mileage. They are sold frequently because they are being purchased in large volumes by consumers.
-Q: average popularity, with a regular frequency of acquisitions.
-R: low popularity, which are almost never out of stock and take up space that could be better used.
Did you like this content? On the Bertolini Storage Systems blog, you can stay up to date with everything that is important to ensure the optimization of your company's logistics processes.
For example, a WMS guide. With this material, you will learn about the advantages and disadvantages of this system. It can even help you implement cyclical inventory!
