Inventory counting is the process of reviewing and adjusting the inventory levels of a business. Companies must keep track of their inventory to prevent stockouts, overstocking, and discrepancies. Different types of inventory counting methods are available, each with its own advantages and disadvantages.
In this article, we will sharply explore the different kinds of inventory counting and what are their advantages and disadvantages over each other.
I. Periodic Inventory Counting
Periodic inventory counting is the most basic and straightforward method of inventory counting. It involves taking a physical count of all inventory items at the end of a specified period, usually monthly, quarterly, or annually. The count is then compared to the recorded inventory levels to determine if any discrepancies exist. The followings are the pros and cons of periodic inventory counting.
Pros:
- It is easy and straightforward to conduct.
- It quickly resets inventory accuracy
- It can help identify inventory discrepancies.
Cons:
- It does not provide a sustainable inventory control solution
- It can be time-consuming, especially for extensive inventories.
- It can result in stock shortages or stock overages if not conducted frequently or accurately enough.
II. Cycle Counting
Cycle counting is a method of inventory counting that involves counting a small portion of the inventory frequently, typically weekly or monthly. The cycle count is then compared to recorded inventory levels to determine discrepancies. The followings are the pros and cons of cycle counting.
Pros:
- It provides real-time inventory levels and helps identify discrepancies immediately.
- It requires less time and resources compared to periodic inventory counting.
- It can help prevent stock shortages and stock overages.
Cons:
- It can be challenging to implement
- It requires a lot of operational discipline
III. Inventory Variance Verification Analysis and Adjustments
ABC analysis is also a main method of counting inventory items. It can be done by counting items into categories based on their importance. The classification is typically based on the value of the inventory items, with items being the most valuable and items being the least useful. The followings are the pros and cons of an inventory based on Inventory Verification Analysis and Adjustments.
Pros:
- It helps identify items with the highest variances.
- It helps prevent stocks from the high volume items.
- It can help optimize inventory accuracy for high-valued and high-turnover items
Cons:
- It requires a significant amount of data and analysis to implement.
- It may not be as effective for businesses with many inventory items.
- It does provide an overall accuracy level of your total inventory
IV. RFID Counting
RFID counting is a method of inventory counting that uses radio frequency identification (RFID) technology to track inventory items. Each inventory item is tagged with an RFID tag, which RFID scanners can read. The followings are the pros and cons of RFID counting.
Pros:
- It provides real-time inventory levels and helps identify discrepancies immediately.
- It is more efficient and accurate compared to manual counting methods.
- It can help prevent theft and reduce holding costs.
Cons:
- It requires a certain level of CAPEX investment.
Conclusion
Accurate inventory counting is essential for any business to maintain proper inventory levels and prevent stock overages and shortages along with minimizing stock discrepancies.
The choice of inventory counting method depends on several factors, including the inventory levels, the resources available, and the level of absolute accuracy required.
Periodic inventory counting is the most basic and straightforward method. In contrast, cycle counting, Inventory Variance Verification Analysis, and Adjustments are perfect to get an assessment of your accuracy level on some of your items while RFID counting solutions are more advanced methods that provide real-time inventory levels and help identify discrepancies instantly.
