To cycle count or stock-take

Any business, large or small, must perform some sort of count of their inventory at some point in time. There are two commonly accepted methods of counting inventory stock: stocktaking or cycle counting. The method that will best suit a particular company needs to be carefully considered as they are drastically different and can have a significant effect on company operations. This article dissects the two methods of counting inventory and explains how each method affects your business.

Stocktaking

Conducting a stocktake is when the entire business might need to shut down or work after hours for a period of time to allow for each individual item to be physically counted. This count is then compared with data obtained from the inventory management system.

In the ideal world, these two sets of data will agree, indicating: that the inventory management system works well, that no inventory stock items have gone rogue costing the company, and that the staff, well, know how to count. Unfortunately, it is extremely easy to make mistakes when conducting a stocktake. These are often either the physical count or the fact that an error in the system that has been carried forward each stocktake.

Another negative effect of stocktaking is that the entire warehousing and manufacturing processes must be shut down for the duration of the stocktake as any extra items receipted into or removed from the warehouse can alter the count and result in errors. This shut down costs the company money both in the down time and in the staff time taken to physically count every item.

For a large business with many items of inventory, conducting a stock take once a year might be insufficient, but a small to medium-sized businesses may well be able to function quite happily stocktaking annually as the inventory stock is less in number and far easier to control accurately.

Cycle Counting

Cycle counting is where a certain proportion of inventory stock is counted in intervals. The count of this proportion is thought to be representative of the whole and likewise, if the count of this proportion is accurate, then it is assumed it can only be so if the entire inventory is accurate.

A bonus of this method of inventory counting is that within a certain time period, perhaps a year, the entire inventory has been counted. This, of course, happens without the need for a large-scale shut down because the smaller the count is, the more controllable it is. We have already discussed the costs associated with a shut down and staff time, therefore cycle counting can be a more cost-effective option for the company.

Two assumptions must be made in cycle counting. These are that firstly, the accuracy of the counted items must represent the accuracy of the entire population (or warehouse of inventory in this instance); and secondly that any errors identified in the counted items must represent errors that exist in the population.
Due to the frequency of cycle counting, any errors that emerge can be acted upon quickly and therefore any knock-on effects can be minimised or controlled. This certainly is beneficial as errors left to multiply can quite quickly have a dramatic effect, cost the company and require a significant amount of time to correct.

Stocktaking or cycle counting are entirely individual choices to the company, however the effects of each should be carefully considered. In larger companies, it might be extremely difficult to halt warehouse operations for a period. However, smaller companies may be able to shut down with relative ease and it may also be easier to identify and rectify errors that emerge once a year.

Regardless of the method of physical counting you employ, it is imperative to have a good inventory management system in place to function collaboratively with your choice of count.

Theft Prevention Tips

With the large value of inventory on hand, your warehouse is a prime target for thieves. If you’re looking to reduce theft in your warehouse, then you can try some of these simple warehouse theft prevention tips.

Inventory shrinkage is a costly reality for most warehouses. Sadly, one of the most common causes of inventory loss is warehouse theft (which is often an inside job). The tricky part is identifying whether missing stock is due to theft or simply misplaced or mis-picked inventory.

Why do employees steal?

They’re struggling to make ends meet.

Very often when an employee is struggling financially, they may be tempted to steal from their employer – either taking items home for their family or to sell for cash. Their justification is that they need the item/s more than you do, thinking the company won’t miss or can easily afford to replace missing stock.

An “you owe me” attitude.

Some staff may believe that the company they work for owes them something. They don’t see pilfering stock as theft – it’s simply taking what was rightfully theirs to begin with.

Opportunists

Opportunists. These thieves will take something desirable just because they can. Small stock items like make up, clothing, food stuff, and electronics are most at risk of opportunistic theft, as the thieves will take items that are easy to access and conceal.

The best way to identify theft in your warehouse is to conduct regular cycle counts or stock takes. The more accurate your inventory data, the faster you’ll pick up on theft. Without regular stock takes, you may not even notice that inventory levels are shrinking suspiciously until months down the line – by which time you’ll be haemorrhaging cash.

Look out for the following red flags that could indicate warehouse theft:

Your stock levels don’t match your sales records

Staff rumours suggest theft is taking place

Certain team members avoid taking their annual leave

Stock is constantly found near exits or loading bays

It is very difficult to prove that someone is guilty of warehouse theft without catching the person red-handed. It’s much easier to put security measures in place which help you avoid theft altogether.

If you notice any discrepancies, look into them immediately. The longer you leave it, the harder it will be to ascertain whether the missing stock items are lost or stolen.

Take a look at your shift register to see who was on duty when the stock went missing. If you begin to notice a pattern between missing stock and certain staff members on duty, monitor their activity in the warehouse. If you notice any suspicious behaviour (such as consistently clocking in or out at odd times) then you may need to investigate further.

CONDUCT BACKGROUND CHECKS BEFORE HIRING NEW WAREHOUSE STAFF

Doing a basic background check on criminal records will drastically decrease your chances of warehouse theft. Says Gulf Business, “Numerous subsets of screening services may be included in an employment background check. Which ones you choose will depend on a whole host of variables, including the nature of your industry, nature of your business, what kind of role you’re hiring for, where in the corporate hierarchy that role falls, and your organisation’s level of risk tolerance. Beyond that, you should be mindful of the laws and regulations affecting your organisation.” They add, “The bottom line is that when they’re done properly, background checks can help ensure the integrity, fairness, and consistency of the hiring process. That’s good for those doing the hiring, of course, but it also benefits honest candidates who are playing by the rules and giving employers an accurate picture of themselves and their qualifications.”

Check the criminal history of potential employees as well as checking with previous employers to find out how long the person worked there and why they left. Trust your gut – if you’re not sure about someone’s credibility, don’t hire them.

EDUCATE EMPLOYEES ABOUT COMPANY POLICY ON THEFT

Make sure all your staff are aware that you have a zero-tolerance policy when it comes to theft or fraud. Have them sign a code of conduct that clearly outlines how violations will be punished.

Additionally, you can identify anonymous channels for staff to report any suspicious activity. If everyone knows that their colleagues are keeping an eye out, it will deter thieves due to a higher chance of being caught. 

LIMIT ACCESS TO STOCK IN YOUR WAREHOUSE

Use the physical layout of your warehouse to create barriers that help to prevent theft. Separate your receiving and shipping docks where possible, to prevent newly received stock exiting on an outbound truck before it even enters your warehouse. Keep your pick faces and inventory storage locations as far away from your shipping and receiving areas as possible. The only stock that should be near these areas are incoming and outgoing orders.

Provide visiting truck drivers with a dedicated lounge area to wait while orders are being loaded or unloaded. Only staff should have access to your warehouse or distribution area.

ENSURE YOU HAVE ROBUST SECURITY SYSTEMS IN YOUR WAREHOUSE

Installing security systems like access control and CCTV cameras not only deter criminals but also provide evidence if the theft is caught on camera. These cameras should be strategically placed in high-risk areas. You can also install security mirrors to maximise visibility and prevent blind spots in hard to reach corners of your warehouse.

Additional security measures like unplanned warehouse walkthroughs by supervisors, team leaders or management can act as an additional deterrent. Make sure these walkthroughs are completely unpredictable. Some key areas to check include shipping and receiving bays, and entrances and exits. Security personnel should be stationed at every entrance/exit to the building. Be sure to inspect any vehicles leaving your warehouse to check for any unauthorised stock leaving the premises.

Staff and visitors’ parking should be located separately from your warehouse operations. No private vehicles should be near your warehouse.

How a warehouse management system helps to prevent warehouse theft

The less accurate your inventory records, the faster your warehouse becomes an easy target.

Knowing exactly what stock you have on hand (and where that stock is located in your warehouse) helps you identify missing stock immediately and ultimately reduces warehouse theft. However, trying to keep track of stock manually often leads to errors – especially if you’re doing infrequent stocktakes.

This one of the key benefits and why you need a WMS.

GETTING FLEXIBLE IN YOUR WAREHOUSE: STOCKTAKES VS. CYCLE COUNTING

Your WMS allows you to be more flexible in your warehouse, moving from traditional stocktake methods to cycle counting.

Cycle counting ensures that your inventory is frequently checked for accuracy – without interrupting your operations. You simply count small subsets of inventory in various locations in your warehouse, on an immediate, daily or weekly basis. Not only is this a more productive and efficient method of inventory control, it’s easier to spot theft because you can spot discrepancies sooner rather than later.

There’s no single solution for warehouse theft. It takes a combination of strong processes, security systems, warehouse management software and excellent hiring criteria to reduce theft in your business. We advise taking precautionary measures to raise awareness, identify weak points and limit opportunity.

SC Junction