A cycle count is an inventory management procedure where a small subset of inventory is counted on any given day. Cycle counts contrast with traditional physical inventory in that physical inventory stops operation at a facility and all items are counted, audited, and recounted at one time. Cycle counts are less disruptive to daily operations, provide an ongoing measure of inventory accuracy and procedure execution, and can be tailored to focus on items with higher value or higher movement.

ABC codes

Most cycle counting applications use an ABC code analysis, segregating items into various count 22 frequencies^[1].

Determining Count frequency

There is much debate on the method of determining cycle count frequency

Pareto method

The Pareto method, derived from the Pareto principle, is to cycle count inventory by percentage of inventory value. This leads to the expensive items being counted most frequently.

This traditional approach may appeal to accountants by minimizing the variance in inventory value. However, it can be inefficient from a supply chain management perspective. Inventory shortages of even a small, inexpensive component can bring the entire assembly line to a halt while the component is re-ordered.

Cycle counting by usage

Cycle counting by usage states that items more frequently accessed should be counted more often, irrespective of value. Every time an employee adds or removes an item, there is a risk of introducing inventory variance. Logical inventory zones can be set up to distinguish items depending on how frequently they are touched. Volume consumed and volume transacted and volume moved are all ways of determining this.

Hybrid

Most cycle counting frequencies are determined first by a computer running some kind of Pareto-like or frequency analysis, and then changing the count frequency, or ABC code, as needed per item.

Automation

To conduct efficient and accurate cycle counts, many organizations use some form of software to implement an inventory control system, which is part of a warehouse management system. These systems may include mobile computers with integrated barcode scanners that allow the operator to automatically identify items, and enter inventory counts via keypad. The software then transmits data to a database on a host system which can generate inventory reports.

Dangers

Cycle counts can introduce inventory errors if the cycle count process is poorly executed.

References

1. ↑ ABC Analysis for Cycle Counting - Physical Inventory (MIBC)

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