Running a small warehouse is hard enough without your system “saying” you have 12 units in Bin A3 when it is clearly empty. That gap between what the computer believes and what’s actually on the shelf is exactly what cycle counting is designed to fix.
Below is a simple, practical walkthrough: what cycle counting is, why it’s worth your time, and a step-by-step way to count a single location the right way.
What is cycle counting?
Cycle counting is a method of checking inventory by counting small portions of stock on a regular schedule (daily/weekly), instead of shutting down to do one massive annual inventory. You compare the physical count to your system’s quantity, fix mismatches, and (just as important) fix the causes of those mismatches. Over time, this keeps your records accurate without disrupting operations.
Why It Matters
Fewer stockouts and lost sales. When the system is wrong, it can delay reordering and create “phantom inventory” (the system shows stock that doesn’t exist). Research from MIT shows that even small, undetected losses can snowball into severe out-of-stocks and revenue loss because the replenishment logic is fooled. Cycle counting is a direct countermeasure. Massachusetts Institute of Technology
Accuracy targets you can actually hit. With a proper program, organizations regularly maintain 95%+ inventory record accuracy, a widely cited benchmark in industrial engineering literature. MHI.org
Less disruption vs. wall-to-wall counts. Instead of stopping work to count everything once a year, you count a little every day and keep shipping. That’s why many companies use cycle counts in place of (or alongside) annual physicals.
Proven practices from leaders. A U.S. Government Accountability Office (GAO) guide – based on site visits to Boeing, GE, FedEx, and others -recommends setting inventory accuracy goals of 95% or better, performing blind counts, and holding people accountable for results. These are the same building blocks you can apply in a small operation. Government Accountability Office
You’ll be managing to a recognized KPI. “Inventory count accuracy by location” is a top warehouse metric in the Warehousing Education and Research Council (WERC) DC Measures report. So, you’re tracking what the pros track. scg-lm.s3.amazonaws.com
A quick reality check: In a classic study of 370,000 inventory records across 37 stores, 65% were inaccurate. Cycle counting is how you get out of that trap. Harvard Business School
How to properly cycle count one location (bin/shelf/rack)
Use this as a starter SOP you can copy/paste and adapt.
1) Prep the location
Freeze movement in that location: pause picks/put-aways to/from the bin until you finish.
Clear paperwork: post any open receipts/issues affecting items in that bin.
Pull a blind list: print or display the locations only (no expected quantities) so counters don’t anchor on what the system “thinks.” Blind counts are a documented best practice. Government Accountability Office
2) Perform the Count
Two-step count if possible: Counter A counts and records quantities; Counter B spot-checks high-value/fast-moving SKUs.
Capture details: lot/serial, UOM, damaged/expired, and any obvious labeling/location issues (wrong slot, mixed SKUs).
3) Reconcile variances as soon as possible
For each mismatch, check the usual suspects:
Look nearby (mis-slotted item in adjacent bin).
Recent transactions (a late posting or duplicate issue).
Packaging/ID errors (wrong label on the tote).
Then post the correction in your system with a reason code (e.g., mis-slot, receiving error, pick error). GAO’s best practices emphasize quick research and adjustments so management gets reliable data. Government Accountability Office
4) Fix the root causes
Log causes and address the top offenders:
Improve bin labels or slotting for look-alike items.
Update SOPs and retrain if a process step is consistently skipped.
This “find and fix” loop, not just adjusting numbers, is what sustains accuracy.
5) Measure & publish
Track a tiny set of KPIs per location and review weekly:
Inventory Record Accuracy (IRA): % of items where system = physical.
$ Adjustments as % of value counted (GAO cites sites using targets like ≤2% net adjustments).
Top 3 variance causes (to drive corrective action). Government Accountability Office
How often should you count? (A simple starter schedule)
Use ABC logic: count higher-value or fast-moving items more often. For a small operation, a practical first pass is:
A items (top ~10-20% by value or movement): weekly
B items: monthly
C items: quarterly
Common pitfalls (and how to avoid them)
Counting what the screen says, not what is physically there. Use blind counts so you’re measuring reality, not guessing. Government Accountability Office
Fixing numbers but not processes. Post the adjustment, then fix the root cause (training, labels, scanning).
Letting counts drag on. Count, reconcile, and close quickly. Timely research massively improves your odds of finding the real cause. Government Accountability Office
Bottom Line
If you’re a small business, cycle counting is the single most practical way to keep your system honest, keep customers from hitting stockouts, and keep cash flowing. Start with one location this week. Count it blind, reconcile immediately, log the cause, and fix it. Repeat. In a few weeks, you’ll feel the difference on the floor-and see it on the P&L.