Cyclical Inventory: What Is It and What Are the Benefits?

Understand the definition of cyclical inventory, learn how it is performed, and discover its advantages

Maintaining inventory accuracy, meaning the equity between what appears physically and in the system, is one of the major challenges faced by logistics managers. It is not uncommon for errors to occur, leading to product losses or records that differ from what is recorded. Situations like these severely damage stock management and even a company’s finances. Hence the importance of preventing their occurrence and also identifying discrepancies in time so they can be addressed.

In this context, one of the fundamental processes to ensure maximum accuracy is conducting warehouse inventories. But it’s not enough to just count the items. The right strategies must be applied to achieve high reliability. And this is where cyclical or rotating inventory comes into play, a method that brings a series of benefits to the warehouse, including cost reduction.

Cyclical or rotating inventory refers to inventory counting that is performed periodically, at regular intervals throughout the year, whether daily, monthly, bimonthly, semi-annually, etc. Each count focuses on a specific set of items, and at the end of a period, the entire stock will be accounted for.

The merchandise selected for cyclical inventory and the counting frequency are defined based on various classification criteria, and each company chooses the one(s) that make sense for the type of business and product, based on its particular situation and its Stock Control Policy. In this definition, turnover, merchandise value, discrepancy index, among other relevant factors, are taken into consideration.

The cyclical count can occur in full or by sampling, with the possibility of reaching the product level in detail. Additionally, it is possible to include any exceptions in periodic inventories, such as the breakage of an item during picking or the absence of an item during replenishment.

Among the main criteria used in cyclical counts, we can mention:

» By sampling: a percentage of products to be counted is determined, with the aim of having a sample of the stock’s quality level. (For example: counting 20% of the products received or shipped the previous day).

» By moved items: counting only the goods that have been moved in a given period, considering that moved items are more prone to faults due to their handling.

» By quality: cyclical inventory focused on analyzing the quality of certain product groups, evaluating, for example, their physical condition, expiration date, environmental contamination (chemical or biological), among other important aspects. To perform this type of count, it is important to have well-trained professionals to identify non-conformities. If defects are detected, they are eliminated, and the stock is adjusted.

» Geographical: the count takes place in a specific range of addresses in stock, inventorying only the products allocated in that region (*types: view of empty addresses, location, reservation – movements by segregation, region, aisles, picking stations).

» By product: counting a group of goods or a single predetermined merchandise in all warehouse areas.

» By curve: this is a more elaborate type of cyclical inventory, through which the cycle closure frequency is determined by the product turnover (ABC Curve). For example, it is possible to define counting rules where products in curves A and B (very high turnover) are counted in monthly cycles and rules where products B and C (medium and low turnover) are counted in quarterly cycles. In this configuration, N items are counted every day, in the proportions of each curve, interspersing the two rules mentioned above.

As we highlighted earlier, the choice of the cyclical inventory method to adopt depends on the specifics of each company; however, when determining the cyclical counting plan, it is essential to consider that all inventory items are counted at least once a year. In general, the determination of counting frequency and the number of cycles is made based on the ABC Classification or the number of positions in the CD (addresses).

Unlike the annual inventory, which requires great effort and involvement from practically all teams, cyclical inventory is integrated into the warehouse routine, without the need to halt operations to perform the count. Therefore, it is easy to see that cyclical inventory is a more economical solution.

Since counts are performed periodically, focused on a specific group of goods, execution times are shorter, and there is a better condition to analyze discrepancies and quickly undertake corrective actions. In this sense, with cyclical inventory, the company can maintain high inventory accuracy.

Moreover, the data obtained from cyclical counting can also be used to guide decisions on inventory, production, and distribution. Teams will have accurate and up-to-date stock data, allowing them to make more assertive decisions, perform regular analyses, and improve predictability.

Finally, an intrinsic advantage of all the aforementioned benefits is the improvement of customer service. When you have correct stock information, it becomes much simpler to avoid stockouts and ensure that production or supply occurs at the ideal times, meaning the customer will always be satisfied with their requests because the merchandise will always be available at the right time, in the right place, and in the right quantity.

Cyclical Inventory: What Is It and What Are the Benefits? Deagor WMS per ecommerce può aiutarti!