How Inventory Cycle Counts Can Help Grocers Reduce Shrink

by Andrew Hoeft | Nov 21, 2017 12:00:00 AM

Roughly 16 percent of retail shrink stems from administrative paperwork errors, according to the latest National Retail Security Survey. While good accounting systems armed with proper protections can prevent costly pricing mistakes due to markups and markdowns, cycle counting your inventory can have a huge impact on shrink numbers as well.

This practice, when implemented properly, can uncover errors in your POS system before a sale to stop shrink in its tracks.

An alternative to arduous physical counts

Physical counts are widely regarded as the most thorough and effective way to check for money lost due to poorly inventory management. But just mentioning the phrase “physical count” can send shivers down the spines of those who’ve been through one. Thoroughness, in this case, comes at the expense of many hours of work, which in turn leads to headaches and little time to devote to other areas of the store. These tasks are so involved, most stores only conduct them once a year, which opens the door to problems going unnoticed.

Cycle counts offer a solution to the two issues that cause the most severe headaches during a physical count: time and cost. In short, it splits up a store-wide physical count into several smaller inventory segments (usually by department) each month, or “cycle”. Rather than addressing store-wide errors all at once, supermarkets can spend more time focusing on POS issues related to specific products to prevent shrink and out of stocks in the future.

Targeting a major cause of lost revenue

Cycle counts are particularly helpful in preventing one of the biggest drivers of lost revenue: poor fill-in management. When incorrect inventory counts lead your POS system into thinking you have ten products when you only have eight, reorders may not get triggered when they should be. That means empty shelves, disappointed customers, and lost sales.

Cycle counts can help you find and correct these errors that would have otherwise flown under the radar.

Tips for effective inventory cycle counts

Consider counting categories based on the selling season

The most practical cycle counts are those that enable you to fix errors on the products selling now. And while supermarkets don’t tend to be seasonal the way an apparel retailer is, for example, it’s still important to prioritize the categories you count based on seasonal trends that impact sales. Retailers of all kinds find the most benefit when they can respond to errors immediately––at the peak of a product’s selling opportunity.

Count one product category per month

This pace should allow you to count your entire inventory more than once during the year without overloading your staff with work in addition to their routine tasks. A major advantage of cycle counts is that they can (and should) be conducted without having to the close the store.

Designate a staff member to each category

Assigning a particular team member to be accountable for an area of count can help ensure the store is kept maintained and merchandised at all times without saddling a laundry list of duties on one person or small team. These individuals should be responsible for completing the cycle count themselve, which rolls into their performance review each season. While these employees should handle most of the tasks, managers should either assist in counting or play an advisory role to prevent mismanagement, or worse, theft.

Make your cycle counting schedule unpredictable

This offers a layer of protection against employee theft. Without knowing or being able to predict the upcoming counts reliably, those who might be compelled to steal won’t have the luxury of planning their acts, possibly dissuading them from attempting them in the first place.

Share results with the team

Short of having to expose exact dollars (although transparency can always be a benefit), managers should give some concrete evidence as to how their team is doing. This goes for good news and bad news. If there’s a loss, make it known. Sometimes simply airing problems to the team can shed light on mysterious shrink.

Whether you’re thinking about implementing a cycle counting program or improving your current one, it’s important to remember that a major key to success is making the process routine and manageable rather than overbearing.

Resist the urge to pack more and more into each month’s count as this can quickly turn into mini inventories. Keep your program simple and make those tasked with carrying it out are capable and motivated to achieve accurate results.

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