For many manufacturers and distributors, the annual stocktake is seen as an unavoidable ritual. It usually means shutting doors, redirecting staff into tedious counting exercises, and losing valuable trade days. But is it really the best way to manage inventory accuracy?

Take the example of one mid-sized manufacturing and retail business we have been involved with over the years. They closed their business from the last Friday of June through to the following Monday, reopening on the Tuesday.

We quickly undertook a back-of-the-coaster calculation to see roughly what it was costing the business to complete its year-end stocktake, with the view to compare what it would cost the business to utilise a cycle counting regime. Our calculations made the following assumptions:

• Staff are paid a base retail award rate of $30 hr.
• Saturdays are paid 1.75% and Sundays are double time.
• Executives and administrative staff are also involved in the stock-taking effort. For the ease of the math exercise and to keep the costs conservative, we have assumed their cost is at the award rate. The reality is that this will cost the business more.
• Essentially, the whole staff, approx. 50 people are involved in the stock take exercise, because this includes their manufacturing division, not just the retail business
• A very conservative loss of revenue of $10,000 for every day they were closed

The result? Around $70,000 in additional labour costs and another $40,000 in lost revenue—a conservative $110,000 impact. Beyond the financial hit, executives and frontline staff alike were tied up in an effort that produced, at best, a one-time snapshot of inventory accuracy.

Why a Better Way Exists
Cycle counting involves counting smaller subsets of stock on a daily cadence and offers a faster, leaner, and more innovative approach. By applying ABC analysis, businesses can focus more frequently on their high-value or high-velocity items, while lower-impact items are counted less often. The regime ensures A items are counted 12 times a year, B items 3 to 4 times a year, and C and D items once a year. This keeps the effort proportional to business value. It often takes a maximum of a couple of hours each day.

The counts are often, but not always, carried out first thing in the morning before the business becomes operational or last thing in the day after the business winds down for the day. In this example, with conservatively $110,000 a year to work with, the business can easily spend $500 each and every working day to count and reconcile a small subset of stock. At the award rate that allows for a full day’s effort. Clearly, that level of effort and time isn’t required, and so at a very high level, it’s both cheaper and more effective to utilise a cycle counting regime.

The Tangible Benefits of Cycle Counting –

• Eliminates Lost Revenue from Shutdowns. No more locking doors for days at a time. Cycle counts are performed during normal operations, allowing business to continue uninterrupted.
• Improves Inventory Accuracy Year-Round. Instead of correcting data once a year, inventory records remain reliable every day. Research has shown that companies using cycle counting can achieve inventory accuracy rates above 95%, compared to 50–80% with annual stocktakes. This will also show up in the number and value of inventory adjustments within your ERP system.
• Supports Lean Operations. Better visibility reduces the need for “just in case” stock, freeing up working capital and improving cash flow.
• Reduces Stockouts and Production Delays. Accurate data means fewer shortages and disruptions in production schedules, directly improving customer satisfaction and on-time delivery.
• Lifts Workforce Productivity. Teams spend less time searching for misplaced items and more time on value-adding work. Studies suggest productivity in warehousing can improve by 10–15% when cycle counting is embedded correctly.

Making the Change
Transitioning to cycle counting requires discipline, but it doesn’t demand extra headcount. In fact, most businesses find the workload comparable to (or less than) their existing stocktake regime and the results far more meaningful.

When the true cost of annual shutdowns is properly calculated, cycle counting isn’t just an efficiency measure. It’s a business improvement strategy that protects revenue, boosts customer service, and improves overall operational performance.

Isn’t it time to retire the costly annual ritual and move towards a smarter, continuous approach?

In further news:
I was at a business owners’ lunch at The Brisbane Club last week when Des Watkins, CEO of Watkins Steel, spoke about how they are transitioning from a steel company to a technology company.

Des showed several videos of how they were using digital tools to help replicate buildings in projects they were working on. He explained how engineers could use digital twins to take measurements and utilise other data renderings to design around various criteria, such as heritage listing requirements, without needing to visit the site or hire equipment to position engineers within the building. One example showed that an awning wouldn’t fit with the external power poles and other infrastructure. All without having to go on-site and physically measure out the area. These measurements and adjustments then freely flowed to the factory floor during manufacture. It was quite impressive to see what they are doing.

The connected factory is the future of manufacturing in this country. If you are not taking steps to make this connection between your transactional system, your ERP, and your operational systems, then you will be left behind in the not-too-distant future.

We are being asked to help in this space more and more lately.

Further talk about AI – well, it is a topical subject at the moment. A couple of additional observations from last month’s newsletter.

Much of the talk in the financial press and boardrooms centres around the assumptions that the level of improvement we have seen in the different iterations of ChatGPT and its competitors would continue.

Well, ChatGPT 5 has brought that assumption into stark daylight. A report in The Australian Financial Review dated 16th August 2025, states that many consider it a significant step backwards, “The response has been lacklustre as it responds to prompts that are less accurate or useful, are slower to be delivered and less engaging than those from ChatGPT4.” The report goes on to say, “While ChatGPT 5’s problems have raised questions about whether OpenAI’s development could stall in a cloud of disappointment.”

Having said that, there are reports of some of Australia’s larger companies undertaking some pilots. One of the best examples reported was Origin Energy, which reportedly “ripped” $50 million of cost savings out of its customer service function last year. Reportedly, about 60% of email queries are now handled by AI agents, and phone calls are overseen by AI agents looking for tone and key problems – customers suffering hardship, for example.

Whether this trial has delivered the value being espoused is yet to be proven. I am not sure the AI agents have detected my displeasure with them as a customer, and the lack of the $50 mil being reflected in your or my power bills of late. However, that’s a different topic for another day.

Let’s remember Microsoft purchased the old Three Mile Island nuclear plant in Pennsylvania to power these AI centres. There are billions of dollars of investment being spent here from many different companies. Amazon, Google, IBM and a plethora of others are spending big money on the promise that this will deliver significant value. To date, there is concern that this investment has not delivered the value or return to the tech companies. The Wall Street Journal recently reported that Microsoft cancelled another nuclear power contract due to the stalled uptake of Co-Pilot, which was not delivering the results Microsoft had hoped for. It simply didn’t need the additional power they initially thought it would.

So, expect the hype and pressure around AI delivery to be ramped up even further in an attempt to justify this investment. In the meantime, I will continue to look for where that value is being delivered.

On that note, I am off to a key Microsoft presentation this month on AI and its impact on manufacturing. I will be a keen observer at this event, as I am eager to see the value being delivered to one of the industries we serve. I am entirely intentional in going to this event with my eyes and ears wide open, looking for that value. I’ll report back on the success or otherwise of that in a future edition. I’ll certainly be looking for opportunities like the $50 million cost savings Origin supposedly achieved.
Our services are well placed to assist you with all of these endeavours because we don’t deliver big four style consulting – we deliver RESULTING™

If you’re an executive or owner of a mid-sized or large company and want to discuss ideas on how you can use systems and technology to dramatically improve productivity in your operations, decrease costs, enhance scalability and increase profits – give us a call.

Until next month…let’s be Frank!

Sincerely,
David.