Category: Inventory

In inventory management, tracking is of the utmost importance. Especially if your business is moving large quantities of stock, it’s pivotal to know where everything is during each part of the inventory management process.

Determining how to get a barcode for a product is an essential step for condensing product information in a single solution while keeping tabs on where products are in a warehouse. Barcodes use numbers, patterns, and parallel lines to create a readable code that machines can scan. Within this code, you can house all sorts of product information — like price, quantity, date of manufacture, and expiration dates for perishable goods.

Using barcodes is paramount in moving away from inventory chaos, achieving flow, and improving your inventory turnover ratio. When you adopt barcodes for your products, you can better control your stock while making more informed inventory decisions — regardless of how much inventory is in your warehouse.

In five easy steps, we’ll show you how to get barcodes for your products and the benefits of doing so.

1. Determine what type of barcode you need 

When getting barcodes for your products, you’ll typically choose between two different types. While there are additional types of barcodes that fall within these two groups, the main two categories of barcodes are:

• 1D (linear) barcodes
• 2D barcodes

1D barcodes are the most common and traditional type of barcode and generally appear on packaging. 2D barcodes are a more recent advancement and can hold more information than 1D codes. QR codes, for example, are a type of 2D barcode that many companies widely use.

2. Check how many products require barcodes

Your next step is to see how many products you’ll need to get barcodes for, as this will help you determine if you want to use a barcode issuing organization, like GS1, or generate them yourself.

GS1 is a global barcode issuing organization — preferred by companies because of their barcode standards and their use of company prefixes or unique numbers given to your company by GS1.

For example, going through an issuing organization makes more sense if you’re a business owner dealing with your store’s inventory. If you use GS1, you’re guaranteed a unique barcode for all of your products, whereas if you generate it through an online generator, you may receive a replica. Without a unique barcode, you won’t be able to track your product properly.

If you’re striving to build a professional retail business, use GS1. Note, however, that the number of products you need barcodes for will dictate the initial and annual fee that you pay GS1 for your barcodes. The price of barcodes breaks down like this:

3. Create a GS1 account 

Assuming that you’re using GS1 to create your barcodes, the next step is to create a GS1 account.

Once you navigate to the GS1 website, it only takes a few steps to begin generating your barcodes. Simply create an account through the website and then fill out sections about your product. From there, GS1 will handle the rest for you.

4. Obtain unique identification numbers for your products

Once you’ve created your GS1 account and registered your products, you’ll be given Global Trade Item Numbers (GTINs) — unique identification numbers for your products.

These numbers follow your company prefix and will appear on the barcodes you will eventually apply to your product packaging. Typically, a GTIN will be 12 digits and appear under the barcode’s parallel lines.

5. Add the barcodes to product packaging and test for accuracy 

After generating and printing your barcodes, it’s time to apply them to your product packaging or directly to your products.

As a final checkpoint, testing your barcodes to ensure they’re housing the correct product information is beneficial. Before shipping products off, scan your products to ensure they’re correct. Inaccurate product information can cause setbacks and slow down your inventory control process.

Printing Labels with barcodes

Types of barcodes 

There are different types of barcodes, so it’s up to you to determine which is best for your business.

1D and 2D barcodes are the two major types of barcodes, but many popular barcode types fall within these categories. Two of these include:

UPCs 

UPCs, or Universal Product Codes, are the most common type of 1D, or linear, barcodes and are seen largely on product packaging. Assigned exclusively by GS1, all barcode scanners can read UPCs and they provide a unique GTIN for all of your products.

UPCs are an excellent choice for housing basic product information, but they cannot hold as much information as a 2D barcode, like a QR code. UPCs typically contain:

• The GS1 company prefix (the first six to 10 digits)
• The item number (the next one to five digits)
• The check digit (the last digit)

QR codes 

QR (Quick Response) codes are 2D barcodes companies use to house more information than a linear barcode can. Using a QR code comes with several added benefits:

• Can be scanned by smartphones and tablets, while 1D barcodes can only be read by barcode scanners
• Can be created with a free online generator, without having to rely on an issuer for unique GTINS

As a result, specific industries prefer using QR codes for customer service, POS systems,  and inventory tracking. Restaurants and bars, for instance, leverage QR codes for contactless ordering and payments. Food and beverage companies can also use QR codes to house comprehensive nutrition information for their products.

How do barcodes benefit small businesses? 

Leveraging barcodes can be vital in your larger inventory and order management process. By using barcodes, you can better manage product information, easily track stock, and reduce the amount of chaos in your inventory cycle. Here are a few more advantages of generating barcodes for your products:

Streamlined inventory management 

By using barcodes, small businesses can easily track inventory moving in and out of warehouses. If you manage multiple locations or warehouses in different places, using barcodes is the best way to centralize product data in one place so you can keep tabs on all your locations.

The best warehouse management systems come equipped with barcode scanning for these reasons. Cin7 Core uses barcode scanning in its warehouse management app so you can easily track stock from receiving to shipping.

Try Cin7’s Warehouse Management System today.

Reduced errors

Barcodes additionally allow you to keep an accurate record of how much stock you have on hand. By using GTINs for each product, you can easily see what’s in stock simply by scanning the barcode.

When performing inventory cycle counts, it can cause major setbacks if you find physical inventory isn’t matching records. Using barcodes allows you to maintain a more accurate record of what’s in your warehouse.

Enhanced efficiency 

On the customer side, barcodes create a more efficient checkout process, allowing you to quickly funnel customers in and out of your store.

Restaurants, for example, can leverage on-table QR codes for quick and contactless payments, allowing them to turn over customers and fill seats more efficiently.

Frequently asked questions 

If you’ve still got questions about how to get a barcode for a product, here are a few common questions and answers about obtaining barcodes for your products.

How much does it cost to get a barcode for a product? 

The price of barcodes depends on the number of products you need barcodes for. If using GSI, the prices break down as so:

Do you need a barcode to sell in stores?

You don’t necessarily have to have barcodes for your products to sell them in stores. However, using barcodes helps you track inventory, better keep track of sales and inventory quantity, and allow your store to appear more professional.

Can you create your own barcodes?

You can create your barcodes through online generators, but you’ll need to use GS1 to obtain GSINs or unique identification numbers. Your barcodes may be identical to other online-generated ones if you use a free tool.

Is there a difference between SKUs and barcodes?

SKUs and barcodes are similar in that they’re used to describe products but have slightly different use cases. While barcodes are machine-readable codes that hold product information, SKUs are alphanumeric designators that describe a product’s features, like color and size.

Every product has a unique SKU so the seller can easily tell them apart. Barcodes rephrase the information designated in an SKU so it can be easily identified when the product is scanned.

Do you need barcodes for SKUs?

You don’t need a barcode for your SKU, but companies often create barcodes for SKUs to streamline the inventory management process. Generating a barcode for your SKU allows you to quickly and easily update product information just by scanning the barcode.

Who gives a barcode for a product? 

GS1 is the global issuer of barcodes for products. If you’re running a business and need barcodes, you’ll create a GS1 account and obtain your barcodes through their website.

How do I generate a barcode for my products? 

For most businesses, the best way to generate barcodes will be through GS1. However, once you have barcodes for your products, leveraging inventory management software equipped with barcode scanning can help you make the most of your investment and manage your inventory more efficiently.

Cin7 Core’s warehouse management feature uses barcode technology for easy picking and packing — so your inventory can manage itself.

Start a free trial of Cin7 to grow your business today.

In 2013, Walmart experienced an inventory crisis, losing over $3 billion due to out-of-stock merchandise and a lopsided inventory turnover ratio.

Sure, plenty of mammoth companies have mismanaged their inventories and lost billions while remaining successful. However, with only half of small businesses in the U.S. making it to year five, prioritizing inventory management at the SMB level is a critical means of growth and survival.

Inventory management techniques provide cost-saving and profit-boosting benefits for small businesses that help them remain profitable and competitive. Below is a list of some of the most popular and effective inventory management techniques and directions for using them to improve your business.

1. Economic order quantity (EOQ)

Economic order quantity (EOQ) is a method that uses the lowest amount of inventory necessary to meet peak customer demand without going out of stock or producing obsolete inventory. It’s used to create inventory control, or to minimize costs while maximizing profits through inventory management.

EOQ uses three variables in its formula:

• Demand: The units needed for a product for a specific period
• Relevant ordering cost: The ordering cost per purchase order
• Relevant carrying cost: The carrying costs for one unit, assuming the unit is in stock for the period used for demand

The formula for calculating EOQ is:

Economic order quantity = square root of [(2 x demand x ordering costs) ÷ carrying costs]

Best for: Quickly growing businesses with regular inventory needs

Benefits: 

• Minimizes holding costs
• Provides accurate costing

Considerations: 

• Lower periods of demand may leave you with excess inventory

2. Minimum order quantity 

Minimum order quantity (MOQ) refers to the lowest amount of stock that a supplier will sell to you. If you don’t buy the MOQ, the supplier won’t sell you the product.

For retailers, MOQs are especially helpful in limiting excess stock and maintaining steady profit margins. By only offering products in bulk, retailers can more easily balance production and demand.

Best for: Retailers and wholesalers looking to balance production costs with demand

Benefits: 

• Limits excess stock
• Helps companies maintain a steady cash flow

Considerations: 

• May deter customers unwilling to buy in bulk

3. ABC analysis

ABC analysis is an inventory management technique that involves sorting inventory into three categories, according to how well they sell and how much they cost to hold:

• A items: Best-selling items that are cheap to hold and don’t take up warehouse space

• B items: Middle-tier items that sell regularly but may cost more than A-items to hold

• C items: Inventory that makes most of your inventory costs, but doesn’t drive much profit

ABC analysis helps you make smarter decisions about reordering, which, in the long run, can reduce obsolete inventory and help optimize your inventory turnover ratio.

Best for: Small businesses struggling to manage inventory levels

Benefits: 

• Helps make decisions about product prioritization
• Beneficial for setting accurate reorder points

Considerations: 

• Doesn’t account for seasonal demand 

4. Just in time inventory management 

Just in time inventory management (JIT) is the process of making:

• Only the necessary products
• Only the necessary amount of products
• Only when the necessary products are needed

Essentially, JIT creates goods to order. When orders come through, manufacturers only order the inventory needed to produce those specific items.

The JIT system can be integral in minimizing costs, excess inventory, and unnecessary warehousing. However, keeping up as order volume grows can be very difficult.

Best for: Growing companies looking to reduce costs as much as possible

Benefits: 

• Minimizes holding costs
• Reduces excess inventory and waste

Considerations: 

• Difficult to sustain once sales volume grows

5. Safety stock

Safety stock inventory is a small surplus inventory that companies keep on hand to guard against variability in market demand and lead times. Safety stock plays an integral role in the smooth operations of your supply chain in various ways, such as:

• Protecting against unexpected spikes in demand
• Preventing stockouts
• Compensating for inaccurate market forecasts
• Buffering against longer-than-expected lead times

Without safety stock inventory, you risk:

• Loss of revenue
• Lost customers
• Market share loss

The safety stock formula is relatively straightforward and requires only a few inputs for calculation. The formula for finding safety stock is:

(Max Daily Sales x Max Lead Time in Days) – (Average Daily Sales x Average Lead Time in Days) = Safety Stock Inventory

Best for: Companies in industries that experience regular demand fluctuation

Benefits: 

• Protection against unexpected demand spikes, increased lead times, or inaccurate forecasting

Considerations: 

• Risk losing money to excess inventory

6. FIFO & LIFO

FIFO and LIFO are two widely used accounting methods in inventory management that can determine accurate cost and profitability.

FIFO (first-in-first-out) is an inventory accounting method based on the idea that the first items in your inventory should be the first to leave. LIFO (last-in-first-out) conversely states that the last items in your inventory should be the first ones that leave.

Food and beverage companies use FIFO since they deal with perishable goods. LIFO is a great method for non-perishable homogeneous goods like raw materials.

Best for: Food and beverage companies (FIFO) and raw materials (LIFO)

Benefits: 

• Both methods provide accurate costing so you can better value your inventory

Considerations: 

• In FIFO, costing can become less accurate in periods of high inflation

7. Reorder point formula 

The reorder point formula tells you approximately when you should order more stock, or the lowest amount of inventory you can sustain. Businesses can take the guesswork out of reordering by determining reorder points, so they never have too little or too much.

The formula for finding the reorder point is:

(Average Daily Unit Sales x Average Lead Time in Days) + Safety Stock = Reorder Point

It can be monotonous manually setting reorder points, so getting them correct is pivotal so you don’t experience stockouts. The best inventory management software uses automation to determine your reorder point for you so you never fall victim to unexpected disruptions.

See what automated inventory management can do for you.  

Best for: Industries with little to no demand fluctuations

Benefits: 

• Avoid stockouts and excess inventory

Considerations: 

• Unexpected demand shifts can cause reorder points to change

8. Batch tracking 

Batch tracking is a process that uses batch numbers to trace goods along the distribution chain using batch numbers.

Through batch tracking, you can keep tabs on all your raw materials, WIP inventory, and finished goods — ensuring you don’t fill your warehouse with unusable items.

Best for: Food and beverage companies that need to track expiration dates

Benefits: 

• Fast recalls
• Streamlined tracking
• Improved relationships with suppliers

Considerations: 

• Higher volume of WIP inventory
• Higher possibility of employee downtime

9. Consignment inventory

Consignment inventory is a business arrangement where the consignor, usually a vendor or wholesaler, gives their goods to a consignee, which is generally a retailer. In this agreement, however, the consignee doesn’t have to pay for the goods until they sell them.

This inventory management technique allows retailers to enjoy less risk and low ownership costs, which can be great for testing new products on the market.

Best for: Retailers looking for lower carrying costs

Benefits: 

• Low cost of ownership
• Less risk for retailers

Considerations: 

• Low demand for consignor products
• Risk of holding unsold products from the consignor

10. Perpetual inventory management 

A perpetual inventory management system, also known as a continuous inventory system, prioritizes real-time inventory tracking so no transaction goes unaccounted for.

With real-time updates, businesses can more accurately forecast demand and be more proactive about reorders and inventory turnover.

Best for: Multi-location retailers who experience seasonal demand

Benefits: 

• Simplifies multi-location inventory management
• Improves forecasting
• Helps optimize inventory turnover ratio

Considerations: 

• More expensive to implement
• Can have compounding problems for a company if tracking is inaccurate

11. Dropshipping 

Dropshipping is a business model that allows you to sell and ship products you don’t own and don’t stock. Your suppliers –– wholesalers or manufacturers –– produce the goods, warehouse them, and ship them to your customers for you.

The dropshipping process is relatively simple:

1. Receive an order
2. Forward the order to your supplier
3. Supplier fulfills your order

Dropshipping allows individual product sellors the luxury of low costs to get started and low inventory costs.

Best for: Those looking to sell products as a side hustle

Benefits: 

• Low startup costs
• Low order fulfillment costs
• Test products with little to no risk

Considerations: 

• Difficult to build a brand
• Low-profit margins
• Competitive market
• No supply chain control

12. Lean manufacturing system

Lean manufacturing, often referred to as lean warehousing, is a system for maximizing value for the customer while minimizing manufacturing waste.

This system seeks to prevent three types of waste:

• Muda: Parts of the manufacturing process that create waste

• Mura: Processes that don’t drive value to the customer

• Muri: Tasks detrimental to employee well-being

The five principles of a lean manufacturing system are:

1. Value: A company delivers the most valuable product to the customer.
2. Value Stream: Map the steps and processes required to manufacture those valuable products.
3. Flow: Undergo the process of ensuring all of your value-adding steps flow smoothly without interruptions, delays, or bottlenecks.
4. Pull: Products are built on a “just in time” basis so that materials don’t get stockpiled and customers receive their orders within weeks, instead of months.
5. Perfection: Make lean thinking and process improvement a core part of your company culture.

By minimizing or eliminating Muda, Mura, and Muri while adhering to the five principles, champions of lean manufacturing believe this inventory management technique can produce the highest-quality products while increasing your revenue and productivity.

Best for: Manufacturers looking to decrease production costs

Benefits: 

• Reduces manufacturing waste
• Bolsters efficiency
• Increases quality of products

Considerations: 

• Longer onboarding period for staff
• Can be expensive to implement

13. Sigma 

Sigma, or Six Sigma, strives to combat waste by producing almost no defective products. The idea behind Sigma is to improve the manufacturing process to reach near perfection.

The first and most-used method in Six Sigma is a 5-step process called DMAIC:

• Define
• Measure
• Analyze
• Improve
• Control

The DMAIC process uses data and measured objectives to create a cycle of continuous improvement in your manufacturing methods.

Best for: Sales teams looking to grow their customer base

Benefits: 

• Decreased waste
• Increased productivity
• Applicable to any industry

Considerations: 

• Chasing continuous improvement may lead to increased costs and overhead through improvements

14. Lean Six Sigma 

Lean Six Sigma combines lean manufacturing with Six Sigma to create a complete system that removes waste and reduces process variation for streamlined manufacturing and optimal product output.

Lean Six Sigma primarily uses Six Sigma’s processes and methods as the backbone of the system –such as DMAIC –– to drive focused manufacturing improvements while incorporating many lean techniques and tools to reduce wasteful steps and processes.

Best for: Industries with more complex processes, like engineering and manufacturing

Benefits: 

• Less strict as traditional lean methodology
• Increases productivity and employee satisfaction

Considerations: 

• Complex for companies to implement
• Takes a long time to onboard staff

15. Days sales in inventory (DSI) 

Days sales in inventory (DSI) measures the time it takes for a retailer to sell its entire inventory. When you determine your company’s DSI, you can quantify if your inventory is flying off the shelves. You’ll also gain other insights, like:

• How effectively you manage inventory
• What demand looks like for your inventory
• How much capital is tied up in inventory

Use the following calculation to find DSI:

DSI = (Average Inventory / Cost of Goods Sold (COGs)) x 365 days 

By learning your DSI, you inherently learn about the liquidity of your inventory, which can help you make smarter decisions about your products.

Best for: Retailers selling physical inventory

Benefits: 

• Allows you to make smarter reordering decisions
• Can give you a competitive advantage in your market

Considerations: 

• Doesn’t account for changing market conditions

16. Cross-docking 

Cross-docking is a supply chain tactic used to reduce inventory costs and speed up delivery times. Essentially, cross-docking removes the storage stage of the product lifecycle. In this method, products move directly from the truck, from the warehouse they were produced into outbound delivery trucks headed to customers’ doors.

Cross-docking plays into the lean methodology. By eliminating any storage phase, companies can delete time that’s not valuable to customers, thus saving inventory costs and increasing efficiency.

Best for: Retailers with high inventory turnover looking to reduce logistics costs

Benefits: 

• Reduced transportation and procurement costs
• Quicker delivery times
• Less manual handling of products

Considerations: 

• Requires more planning and a strong relationship with your suppliers

17. Materials requirement planning (MRP) 

Materials requirement planning (MRP) describes a process where manufacturers use both demand forecasting and the bill of materials (BOM) of a product to accelerate the production process. Manufacturers look specifically at three elements in MRP:

• What they need
• How much they need
• When they need it

By establishing these elements before production, manufacturers can establish a more efficient process that doesn’t create waste.

Best for: Product-based manufacturers struggling to meet inventory requirements

Benefits: 

• Prevents excess stock and wait times
• Accounts for possible disruptions to the production process

Considerations: 

• Only works if you’ve input the correct information into your BOM

Tips for improving your inventory management process 

After identifying the inventory management technique that makes the most sense for your business, you can finetune other processes and fully achieve inventory flow.

Here are a few other best practices that can complement your chosen inventory management technique:

• Implement regular inventory cycle counts: Regular inventory cycle counts work to ensure physical inventory always matches inventory records. Getting in the cadence of regular cycle counts will help avoid any setbacks down the road.

• Optimize warehouse management: Optimizing your warehouse management system is integral to a sound inventory management process. This may mean incorporating lean manufacturing principles, optimizing warehouse design, or identifying inefficiencies in your current warehouse management.

• Prioritize inventory control: Inventory control, or maximizing profit while minimizing cost, should guide your inventory management process.

• Automate inventory management processes: Automated inventory management can help you save money and time while accelerating growth. Automation reduces human errors that can pause momentum and set your growth back.

Start a free trial of Cin7 today. 

Frequently asked questions

Still wondering about the best inventory management method for your business? We’ve got you covered. Here are some frequently asked questions and answers about inventory management techniques.

What are the four inventory management techniques? 

The four most popular inventory management techniques are:

• FIFO

• Just in time inventory management
• Materials requirement planning
• Economic order quantity

These four methods tend to be the most widely used due to their proven success and their versatility to fit into several different business models.

What is the most commonly used inventory management method? 

First-in-first-out (FIFO) is the most commonly used inventory management technique in manufacturing. Manufacturers like using the FIFO method because its structure closely resembles how stock typically moves through the inventory lifecycle.

Which inventory technique is best? 

Many believe that FIFO is the best inventory technique because of how closely its model resembles the inventory flow.

In most cases, the first items you add to your inventory will be the cheapest since prices typically rise over time. As a result, those items will be most likely to sell first.

What is the best inventory method for a small business? 

FIFO and just in time inventory management are the best inventory methods for small businesses.

While FIFO may provide your small business with the most accurate cost and profitability information, just in time inventory, while risky, can help small businesses save money in their early years.

How do you overcome poor inventory management? 

Inefficient inventory management can have compounding effects that can stunt a business’s growth and cause you to spend unnecessary time and money. While these techniques can add efficiency to your inventory processes, software can collect data to make smarter decisions for you, so you can focus on growing your business.

Connecting your inventory management through comprehensive software is a surefire way to achieve flow and add efficiency to your existing processes.

Level up your inventory management techniques with a free trial of Cin7.

Auditing inventory is an undervalued aspect of inventory management and one of the most crucial. For warehouses to run efficiently, companies must regularly ensure that physical stock matches inventory records, which is easier said than done — especially if your inventory needs fluctuate due to demand shifts and business growth.

Inventory cycle counting is an inventory tracking method that companies use to verify that physical stock matches inventory records. Unlike periodic and perpetual inventory methods, cycle counting refers to a cyclical process that companies employ to avoid traditional audits and ensure inventory always gets accounted for.

Companies tend to prefer inventory cycle counting over traditional stocktaking processes. Full physical inventory counts, while necessary, are often time-consuming, profit-shrinking, and headache-inducing. Yet, most small businesses only use full physical inventory audits to take stock.

Below, we’ll show you what cycle counting is, how it can benefit your business, and reveal cycle counting best practices so you can manage your inventory efficiently.

What is cycle counting?

Cycle counting is an alternative stocktaking process that involves regularly counting a small portion of your inventory over time instead of counting your entire inventory in one sitting.

While most businesses have to shut down or work overtime to perform full physical inventory audits, cycle counting allows businesses to update their inventory records without shutting down during business hours or after closing time, allowing you to keep processes in flow and maintain inventory control.

The cycle counting process itself is relatively simple:

1. Choose which items need to be counted
2. Determine the order you need to count them in
3. Establish how often you’ll count

Later, we’ll explore the specifics of performing your cycle count.

Inventory cycle count methods

Depending on your business, warehouse management system, and products you sell, certain inventory cycle count methods may work better than others. Here are a few different inventory cycle count methods and examples of each.

1. Control group

Control group cycle counting is especially helpful for businesses using cycle counting for the first time because it allows you to test the process and uncover errors in your method before implementing it across your entire inventory.

With this method, you will choose a small group of items that will get counted many times over a short period. Once you can perform the cycle count without any errors and feel confident in your process, you can apply it to the rest of your inventory.

Example: A shoe retailer tests control group testing on shoe soles, an area the company is confident they have an accurate inventory. Once the process works well for soles, they apply control group cycle counting to the entire warehouse.

2. ABC analysis

ABC analysis is a cycle counting method that involves sorting inventory into three categories based on how well they sell and how much they cost to hold. The categories include:

• A items: Best-selling items that don’t take up all your warehouse space or cost
• B items: Mid-range items that sell regularly but may cost more than A-items to hold
• C items: The rest of your inventory that makes up the bulk of your inventory costs while contributing the least to your bottom line

The item’s category dictates how frequently it gets counted during the process.

• A items: Counted most frequently (multiple times throughout the year)
• B items: Counted somewhat frequently (a few times throughout the year)
• C items: Counted infrequently (once or twice throughout the year)

Example: A hoodie company is categorizing their hoodies for their fall demand season. Category A hoodies are the most popular and will be in high demand when fall begins. Category B hoodies are less popular but still integral to the company. Category C hoodies are low-value, and effort doesn’t need to be put into selling them.

3. Random sample

In warehouses with many similar items, you can randomly select items to be counted. Random sample cycle counting consists of two different approaches.

• Constant population counting: Items are returned to the general population of the warehouse after getting counted, which means they could be selected to be counted again.

• Diminished population counting: Items remain outside the general population after getting counted, ensuring you don’t count them again.

The method you select will largely depend on the frequency you count your items. If you do cycle counts often, constant population counting likely makes the most sense since duplications won’t matter much in the long run.

Example: A makeup company counts stock weekly using the constant population counting method. Since the staff counts certain items every seven days, it doesn’t make a difference that they’re returning items to the general population.

4. Cycle counting by usage

This is one of the simplest forms of cycle count as it relies on counting frequently used items. In this method:

1. Items get sorted as per the frequency of workers accessing them.
2. Storage racks get arranged accordingly, so you don’t need to assign dedicated staff hours.
3. High-consumption items get prioritized, and the complexity is relatively negligible. However, it does not differentiate the cost of the stored components.

Cycle counting by usage overlooks the impact of any miscalculation on the production process or financial losses. As a result, this method only makes sense for low-value, comprehensive inventory-carrying companies.

Example: A chip company sells its barbeque flavor well but struggles to see its salt and vinegar flavor. As a result, staff counts the barbeque flavor daily but only counts the salt and vinegar flavor monthly.

5. Hybrid method

Hybrid methods are formed by combining ABC analysis with other methods. This includes focusing on vital parts, production line vulnerability, reorder costs, economic order quantity (EOQ), sales, hazards, and other relevant factors.

This approach varies from company to company and is usually a tailored procedure. In most cases, companies will implement the hybrid method because they have a specific product that doesn’t fit nicely into one of the categories within the ABC structure.

Example: The same hoodie company from above introduces a new sustainably-made hoodie that doesn’t sell as well as category A hoodies but is costlier to produce and hold. As a result, you use cycle counting by usage for the new model but continue using ABC analysis for all the other hoodies.

6 Inventory cycle count best practices

While the method you select will guide the inventory cycle count process, it’s important to follow a few universal best practices when conducting your count. Some of these include:

1. Developing a plan for routine cycle counting

Before jumping into a cycle counting routine, you should detail:

• Exactly what items you’ll count
• How often you’ll count those items
• How frequently you’ll conduct your counts

You could make cycle counting a part of your daily routine, or choose one day every week to do it. Whatever your plan is, write it down and stick to it.

2. Creating a cycle counting team

You have to be on the frontlines implementing cycle counting, but you don’t have to do the cycle counting yourself.

Instead, you should assemble a team to perform the actual counting. Your team can consist of one other person or a group of employees.

Regardless, make sure they understand their job responsibilities, the layout of your warehouse, and how to use the tools for counting your inventory.

3. Checking for accuracy

When you have staff physically counting inventory, it leaves the door open for human error. Double-checking the count is a good way to get the most accurate number. While it may feel wasteful to dedicate this much time to a QA process, inaccurate counts can lead to more significant business interruptions if not identified quickly.

You can check in a couple of different ways. For example, if the morning staff does the initial count, you can also ask the afternoon staff to do a count to verify the numbers. You can also have supervisors do a second count after the staff completes theirs.

4. Make sure inventory data is current

Keeping your inventory records current is equally as important as keeping a pulse on your physical inventory.

Before you begin your cycle count, verify your inventory records are up-to-date, so you cross-check physical inventory against the most current inventory information.

5. Investigate errors

If you notice that physical inventory does not match your inventory records, dig into the issue and find where the problem lies. Investigating errors in your cycle count may reveal other issues related to your inventory management process.

Some common errors include:

• Human errors, like miscounting
• Incorrect data entry
• Disorganized warehouse

Inventory management software automates data entry and updates automatically, making you less likely to experience errors during cycle counting.

6. Leverage automation

Automated inventory management gives you the capability to increase the accuracy of your counts by:

• Automatically updating inventory information
• Running regular inventory reports
• Identifying low stock

Leveraging automation in your cycle counts can speed up the process down the road, as errors are far less likely to occur with comprehensive software keeping tracking of your inventory data.

Automate your inventory management with Cin7

Benefits of an inventory cycle count

Having accurate inventory information is necessary for the health and growth of a small business. However, doing regular cycle counts has some lesser-known benefits. Some of these include:

• Minimizing disruptions to business operations: You never want to pause business operations because of an inventory issue. Regular cycle counts ensure you stay in the flow.

• Saving costs: If you select a method that works well for your specific business needs, you’ll gain stock information that can help you place smarter and more strategic reorders, thus improving your inventory turnover ratio.

• Providing real-time insight into inventory levels: The more frequently you perform inventory counts, the greater your awareness of what’s in your warehouse and what your inventory levels look like.

Inventory cycle count vs. physical count

The main difference between inventory cycle counts and physical counts is the count frequency and the items getting counted.

Physical counts:

• Are more structured than inventory cycle counts
• Always happen twice a year
• Involve counting all the stock in the building

Inventory cycle counts:

• Are designed according to your chosen method
• Can happen as frequently as every day
• Involve counting a predetermined number of items

Frequently asked questions

Still have questions before launching into your cycle count? Here are some of the most common questions (and answers) about implementing cycle count in inventory management.

What is the 80-20 rule in cycle counting?

The 80-20 rule is a principle that claims 20% of warehouse parts are responsible for 80% of sales.

In cycle counting, the 80-20 rule justifies that certain items should get counted more regularly, as some are far more significant to a business’s bottom line than others.

How often should you cycle count inventory?

You should conduct a full cycle count at least once a quarter, but you may want to perform counts of high-priority items as often as every day.

More regular counts can also help you avoid doing time-consuming full counts at the end of each month or quarter.

What is an example of a cycle count?

Say, for example, you have 1,000 stock-keeping units (SKUs) that you need to count monthly.

An example of an inventory cycle count could be the process of counting the items in 3 to 4 of each SKU daily.

What is a good cycle count accuracy?

A good cycle count accuracy is between 95%-98%. Anything less than 95% would likely require you to do a full physical inventory count.

For companies carrying high volumes of inventory, it’s normal to come in slightly south of 100%, such as 97% or 98%. Miniscule differences like this don’t require you to conduct a full physical inventory count.

Create efficiency with regular cycle counts

Inventory cycle counts are a vital part of achieving inventory efficiency and Connected Inventory Performance, but they’re only one piece of the puzzle.

With comprehensive inventory management software, you can ensure more accurate inventory counts and make informed decisions through your cycle counts. Coupled with a robust tool, your inventory cycle counts can go from monotonous tasks to strategies that bolster business growth.

Start a free trial of Cin7 today to learn more.

Many people view cost-cutting as a reaction to economic challenges like rising prices or decreasing consumer demand. In reality, cost optimization is a smart way to build a competitive advantage and set your business up for long-term success.

However, for 70% of businesses, the main reasons behind reducing expenses are generating long-term efficiency and enabling business transformation and growth. In fact, less than 25% of companies said that economic conditions motivated them to cut costs.

So, the question becomes, where to focus your energy?

The best cuts to make are in areas that already cost you a lot of money, and inventory is one of those. Keep reading to learn 10 practical ways to reduce inventory costs, operate more efficiently, and create opportunities for business growth.

What is the cost of inventory?

Inventory costs include all the expenses surrounding your products, including purchasing, assembling, storing, and holding excess stock you haven’t sold yet. As such, inventory costs refer to more than just the price of the products themselves.

Examples of inventory costs include:

• Transportation and handling
• Purchasing costs
• Obsolescence
• Insurance
• Security
• Labor
• Taxes

While inventory is vital, it’s also a source of many unnecessary expenditures, such as storage costs for excess products you can’t sell or price premiums for expedited shipping to avoid stockouts.

By focusing on inventory cost reduction, you can improve your business’s operational efficiency, increase profit margins, and boost your bottom line. Let’s take a look at how.

How to reduce inventory costs

Here are 10 strategies to cut inventory costs and improve overall efficiency. Even focusing on one or two methods will enable you to reclaim your cash flow and increase profits.

1. Avoid minimum order quantities

A minimum order quantity (MOQ) is the smallest amount or number of a product a company will supply. MOQs are commonly used by suppliers and manufacturers to unload more of their inventory on retailers and wholesalers.

Suppliers might offer deals to sweeten their MOQ, like “buy 50 items and receive 10 free.” While it sounds like a good deal, you may end up with excess inventory you’re paying to store because it doesn’t sell.

The good news is there are a few ways you can avoid the MOQ trap, such as:

• Pooling cash with a fellow business owner who needs the same stock and splitting the inventory items.
• Offering to pay your supplier a little more money for less inventory. You may pay a bit more upfront but save money later on by reducing inventory holding costs.
• Build a relationship with your supplier and negotiate a deal to eliminate the MOQ without any added cost.

2. Know your reorder point

A reorder point is the optimal stock level at which you should place your next order. The right reorder point helps you reorder the right amount of inventory in time to meet customer demand. As such, you can reduce costs associated with both dead stock and stockouts.

You can use our reorder point formula guide to help you find that sweet spot for inventory replenishment.

3. Improve warehouse organization

Unorganized warehouse space can be costly because it increases travel expenses and the likelihood of misplaced and damaged inventory.

For instance, if you group products based on SKU type without considering which products move faster, you may have staff traveling frequently to pick and pack your most popular items, resulting in higher labor costs and increased risk of product damage.

With 51% of companies increasing pay to close warehouse staffing gaps, improving warehousing logistics can effectively offset increased labor costs and generate long-term savings.

An organized warehouse should lead to more efficient sorting and picking. This strategy is especially effective for brands with large warehouses, where workers may have to travel thousands of square feet for a single product.

The key is putting your fast-moving items up front in the staging area. On top of that, using tools like Cin7 Warehouse Management can help you further optimize your pick, pack, and ship process.

Refer to our warehouse layout design best practices to learn more.

4. Get rid of obsolete stock

Obsolete stock refers to any inventory that’s stayed on the shelves after it should’ve been sold. In other words, it’s products you purchased but couldn’t sell.

Holding too much inventory increases the chance that the stock you thought would sell is now taking up valuable space in your warehouse and costing you more money than you paid for it.

The key here is inventory reduction. The less you have, the less your carrying costs will be. And obsolete stock is the most costly inventory you can have. Not to mention, it’s taking up space that could be used to house faster-selling products.

If you already have a lot of obsolete stock, you can try product bundling or price discounts to sell more. You may also be able to donate your obsolete stock you can’t sell for a tax write-off.

Check out our guide on avoiding obsolete stock so it doesn’t become another problem in the future.

5. Implement Just-in-time inventory

Just-in-time inventory (JIT) management is a method for keeping almost no inventory in your warehouse at all, but instead, ordering everything you need the moment you need it.

It’s a form of lean manufacturing that eliminates the need for safety stock and drastically reduces inventory costs.

It requires you to:

• Separate repetitive orders from one-stop business
• Develop strong supply chain relationships
• Institute or improve quality control
• Shorten production cycles

While managing inventory with the JIT method isn’t for everybody, it’s a proven way to reduce costs dramatically. Use our complete guide to JIT inventory to see if it’s right for you.

6. Use consignment inventory

Consignment inventory allows you to offload a portion of your inventory to the retailer carrying your inventory. The catch to this arrangement is that the retailer doesn’t pay for the inventory upfront. Instead, they pay you when they make a sale.

If you’re OK with that, selling on consignment can be an easy way to reduce your inventory costs. See examples and benefits of consignment inventory here.

7. Reduce lead times

Lead time reduction is the process of shortening the time it takes to receive a purchase order. Shorter lead times reduce inventory costs in two ways.

First, they allow you to reduce inventory levels, helping you avoid costly overstocking. Second, shorter lead times mean you can place less frequent orders, which makes it possible to reduce the size and cost of your warehouse.

If this strategy is right for you, learn more about how to calculate and reduce lead time.

8. Monitor KPIs

Tracking your inventory KPIs is essential to reducing costs in all aspects of your business, not just inventory costs. In addition to your total cost of inventory, you should also be tracking your write-offs and write-downs, rate of inventory turnover, cycle time, and fill rate.

By benchmarking your numbers against industry averages, you can assess how well you manage your business and warehouse and identify opportunities to cut costs.

9. Use a perpetual inventory system

The debate between periodic and perpetual inventory is mostly coming to a close as more and more businesses recognize the cost-cutting power of a perpetual inventory system.

Perpetual inventory lets you track your purchases and sales in real time, allowing you to automatically order stock when necessary and maintain healthy inventory levels. While it may sound like more work, you can automate it.

Discover the benefits of inventory management software here and determine which features to look for in a provider.

10. Improve forecast accuracy

Monitoring your business in real-time not only lets you know when you’re low on stock, it also helps you identify your best and worst-selling items and improve demand forecasting.

Accurate forecasts allow you to order just enough to satisfy demand throughout the year for every season.

With tools like Cin7 Core, you can also use sales data to better optimize your inventory levels based on what’s most popular. Follow our inventory planning best practices to get the most out of your forecasting.

Final thoughts: 10 strategies to reduce inventory costs

Investing in a cloud-based inventory management system allows you to take advantage of many of the cost-reduction strategies listed here. With Cin7, you can know your reorder point, streamline your stocktake, lower your lead time, and deliver accurate metrics for tracking KPIs and forecasting demand.

To see how you can use real-time inventory data and automation to build efficiency, cut costs, and free up capital, try Cin7 Core today.