Inventory Management Basics: What Is Cycle Counting?

August 22, 2022

A pragmatic approach to inventory management

What's good for the goose isn't always good for the gander. Standard businesses that make money buying or producing products to sell have hundreds or thousands of inventory SKUs to manage. These companies require a lot of resources and robust processes, including a stringent inventory cycle count schedule to supplement their yearly or bi-yearly full physical counts.

When it comes to running a dental practice, however, things are quite different. Although dental practices are, in fact, still businesses and should be run as such, dental professionals and their teams are focused on providing optimum patient care. The employee(s) in charge of managing your supply inventory tend to take on the task on top of their regular duties.

Despite the differences, there is still plenty to be borrowed from the cycle, counting best practices and methodologies of other industries.

Below we'll walk you through what cycle counting is, what it entails, and how it can help you take control of your inventory so you can stay in control of your expenses and optimize profits.

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What Is Cycle Counting?

Part of inventory management, cycle counting is an auditing process for physically verifying stock levels. To increase inventory accuracy, any discrepancies between the physical count and inventory accounting records should result in an adjustment. Unlike a full physical inventory count, where all inventory items are counted at once, cycle counts break up the workload into smaller bite-size pieces by selecting fewer items to count on a given day with the goal to eventually count all items over some time. The method allows dental organizations to increase inventory accuracy rates without taking too much time away from employees' essential tasks.

Cycle Counting Frequency

As resources are tight, you want to make pragmatic choices, ensuring your processes directly align with your goals, make sense for your business, and offer a clear return for your investment. Below we list the different criteria you can use for deciding the frequency and order of your cycle counts.

Most used Your most popular items that are pulled from stock daily. These are highly consumable, likely designed for one-time use such as PPE.

Criticality These items are critical to production. Perhaps they are required for the majority of the services you perform or are needed for emergency services that may happen at odd hours and with little notice.

Highest cost Pretty self-explanatory, you may prioritize items for cycle counting based on cost alone. However, counting these items regularly may help you pinpoint loss or theft. At the very least, counting your costly items regularly ensures you don't place redundant orders and unnecessarily fork out for expensive materials.

Physical location This is perhaps one of the most practical options, allowing you to make your way through your stock room right to left. However, you may be holding the same items in other locations. For instance, you may store paper cups in the stock room and hold a secondary stash closer to where they are used. Therefore, when choosing this method, you'll need to ensure all locations holding the same products are counted at once.

Cycle Counting Benefits

Improving your business processes with inventory management is a critical milestone in your journey to long-term viability and increasing profits.

To know what you need, you must first know what you have. This is where cycle counting comes in. You may be new to inventory management or perhaps have even yet to begin. However, no matter how good your purchasing, tracking, and management systems are, neither processes nor employees are immune to errors. As a result, inventory discrepancies are bound to happen.

Cycle counting is an important part of inventory management, increasing your inventory accuracy and allowing you to gain tighter control of your spending and lower your overhead to improve profits.

Verifying on-hand inventory allows you to recalibrate, providing you with the accurate information you need to inform your purchasing decisions. Ensuring you buy the right items, at the right time, in the right quantities, and at the best possible price safeguards your profitably, production rates, and patient service levels.

  • Have the supplies you need to service your patients
  • Reduce your waste
  • Improve your cash flow
  • Save on supply costs
  • Increase your efficiencies

In the long term, maintaining accurate inventory levels will allow you to rely on intuitive order systems that warn you of low stock levels and let you know when it's time to order and reduce your safety stocks.Cycle counting has become a popular inventory management technique across industries as it breaks down the job of counting inventory into bite-size pieces.Further benefits include:

  • Mitigate the risk of inventory write-offs due to obsolete or stagnant inventory
  • A more effective and efficient procurement process
  • Detect loss, fraud, or theft in a more timely manner
  • More accurate usage data that can be leveraged for more strategic procurement

How to Plan Your Cycle Counts

Unfortunately, there is no one size fits all answer to how you should plan your cycle counts. If you've implemented an inventory management system and are looking to increase your accuracy, when and what you count will vary greatly from a practice just beginning its inventory management and procurement journey.

But with a little thought, you can devise a plan suited to your business, allowing you to reap the benefits you most care about without unnecessarily draining resources.

In all likelihood, you're looking to cycle count to improve your procurement because that's where the biggest benefits lie. If that's the case, you'll want to align your counts with your procurement strategy.

If you currently have an inventory management system and are entering your receipt of goods into inventory and withdrawing inventory as it is consumed, then your counts will work as an audit process. This will allow you to increase accuracy and pinpoint any issues in your inventory management process (perhaps employees forget to scan inventory as they pull it from the stock room.)

In this case, you may want to start by counting at least your biggest movers once a month. If you find a few discrepancies, you can start counting less often, say once every three months and then once every six months, etc. Also, upon discovering a large discrepancy, one should always question if an order needs to be placed to ensure you avoid stockouts.

Now, if you're just at the beginning of your journey and aren't currently tracking your inventory, then we suggest you select your biggest movers to be counted biweekly and align the count with your purchasing process. So, count your biggest movers, say once every two weeks, and then immediately place orders for what you need. Then, the balance of your items could be counted and ordered once a month.

Of course, this is just a rough guide. The employees in charge of ordering supplies will likely know what makes the most sense for your practice. By including them in the project early on or even letting them drive it, you're more likely to get their buy-in and have more success in implementing your new process.

If you're using an inventory platform like Method, you can quickly enter your counts into the platform by scanning the barcode. And if you're ready to take advantage of the intuitive order system, you can establish your reorder points, and the system will automatically alert you of what needs to be ordered.

In both cases, keep in mind your high-cost items. These may not need to be counted or ordered as frequently as other items, but they can be extremely costly. Therefore, you'll want to ensure they are under control and avoid unnecessary ordering.

Here are a few key reminders to keep in mind as you're planning out your cycle counts:

  • Ensure you count all items over a given period, say once or twice a year.
  • Time your counts to align with when you'll be placing orders
  • Note and investigate any large discrepancies- why are they happening, and do you need to place an order?
  • Even if you aren't currently tracking inventory, cycle counting is a great first step to ensuring you buy smart.

The Challenges of Cycle Counting

The cycle counting process sounds simple. You create the list of items to be counted, count your inventory and then update your systems or spreadsheets with the correct count.But when your supplies come in boxes and/or cases that are opened and distributed throughout your dental office, suddenly, counting inventory becomes cumbersome and time-consuming.

Rather than avoiding counting altogether, we believe you have more to gain by taking a pragmatic approach. Sometimes good enough is good enough. For example, if you're counting inventory for the express purpose of making good procurement choices, you don't need to strive for 100% inventory accuracy, and there's no point in wasting your employee's time trying to get there.

Instead, estimate your counts and create a spreadsheet that does the math for you.

Here's what we mean:

For example, if you're counting N95 masks that come in a box of 35 and you have approximately 4 and a ½ boxes in stock, you would enter 4.5 into your spreadsheet, which would calculate your total onhand inventory to be 157.5. Now, the count won't be exact. But remember, good enough is good enough.When deciding whether this approach is suitable for a given supply, keep in mind the cost of the item, your usage quantity, and if it has a shelf life. High-cost items or products that may expire should be counted and managed more stringently. However, with your low-cost, high turnover items (like said masks), a small discrepancy in your count won't impact your final purchasing decision or introduce any risk. Now, let's walk you through all of the steps.

The Inventory Cycle Counting Procedure

Step 1: Create your inventory cycle count schedule (what items will you count and when).

Step 2: Create a templated spreadsheet listing the supplies to be counted, including the SKU or manufacturer part#, for easy identification. Include the quantity per box and create a formula to calculate your total on hand.

Step 3: Print off the spreadsheet and use it to manually tally up your counts.

Step 4: Enter your counts into your spreadsheet.

Step 5: If you're tracking your inventory using an inventory management system, update your system with the final inventory count for each item.

Step 6: Review your reorder points and reorder supplies as needed.

Other Cycle Counting Best Practices

Here are a few other best practices that will help you mitigate your risks, continue on your road of improvements, and more effectively implement cycle counting.

Assign Cycle Count Teams

Many hands make light work. You're also more likely to get more accurate counts if they aren't always performed by the same person.

Segregate Duties

Segregation of Duties (SOD) is a financial control measure designed to mitigate the risks of fraud and theft by distributing responsibilities. For example, you should avoid having one employee responsible for purchasing and receiving.If that isn't possible, however, splitting purchasing responsibilities by category, for instance, between various employees, ensures no single person has excessive control over buying activities.

Standard practice is to separate responsibility for:

  • Purchase requests
  • Purchase approvals
  • Receiving of orders or confirmation of work completed
  • Invoice approvals for payment
  • Inventory counts and reconciliation
  • Authorization to dispose or discard of inventory or assets
  • Physical discarding of inventory or assets

Upon Discovering a Large Inventory Discrepancy, Perform a Root Cause Analysis

Suppose you have a current inventory management system tracking your inventory and find large discrepancies between your physical count and your system count, soon after noticing a large inventory discrepancy. In that case, you'll want to perform a root cause analysis to see where your issues lay.If you've implemented inventory procedures, including receiving inventory upon deliveries and withdrawing inventory as it is used, there are two potential causes:

  • If your system count is lower than your physical count, you may have missed adjusting inventory upon delivery of an order.
  • If your system count is higher than your physical count, then it's likely employees are forgetting to scan inventory out as it is being removed from the stock room.

Either way now would be a good time to re-iterate and review your new processes with employees and ask if there are any issues preventing the process from being carried out.

Consider a Digital Inventory Management System

If you haven't already, now may be a great time to consider a digital inventory management system with intuitive ordering and barcoding capabilities to help you implement efficient inventory procedures and controls.

Solid inventory management is essential to a productive, healthy dental practice. A standard, digitized process for tracking and managing your supplies can help you do more with less, improving efficiencies and profits.

Automate Your Inventory Management With Method's Dental Purchasing Software

Reducing the costs associated with inventory begins with accurate tracking of inbound shipments. A single misrouted or delayed order can have a ripple effect across the practice, impacting production and patient care. Therefore, it's critical that all team members have access to real-time information on inventory levels, open orders, and shipment status.

Additionally, all supplies should be inspected, counted, and recorded upon arrival. This doesn't need to be time-consuming, but it does need to be done consistently and accurately.

Spend management platforms that maintain detailed records and leverage barcoding make this efficient for your team and provide an audit trail of exactly what happened and when, so you can pinpoint issues and confirm invoices to ensure you pay no more than you should for your supplies.

A smart inventory process also includes a disciplined approach to recording consumption or withdrawal of on-hand items. But, here's where the right platform with barcoding capabilities that alerts you when items fall below a defined level can help.

Contact us today to schedule a demo and see how our software can help you effectively control your dental inventory management processes!

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