Inventory Cycle Counting: A Must Use Technique for Better Inventory Management

Inventory counting is a mandatory exercise in financial accounting, tax regulations and as a basic management practice. The purpose is to assess the value of stock and serves as an essential tool for safeguarding a company’s assets.

There are tens of procedures a company may resort to in inventory counting with each having its strengths and downsides. The one most touted by financial experts and business managers is the inventory cycle count for quite a number of reasons.

The practice

Inventory cycle counting is a continuous process where stock is verified periodically on a weekly, monthly or bimonthly basis. A small subset of stock in a particular location is chosen, counted and verified on the assigned day rather than undertaking the traditional physical inventory affecting the operations of the whole organization. Select staff, in this case referred to as cycle counters, are assigned roles to physically verify the presence of particular inventory and conduct counts; the final results of the counts are compared with the existing inventory records to assess any existing errors.

Benefits

Cycle counting increases the possibility of accuracy in inventory records. Accuracy in turn, eradicates the need for holistic physical counting and the associated costs. The concept of cycle counting dates back to ages and has exhibited the potential of infusing precision in inventory accuracy, and if well understood, can eliminate structural wastage and other overhead costs. For instance, by engaging the staff in constant cyclic inventory counting, they become well versed with the location, quantity, ordering level and process of the inventory.

If you make a regular inventory counting a habit, you improve accuracy, reduce inventory loss and uncertainties, as well as improve operational efficiency.

Classes of cycle counting

There are several types of cycle counts, but the most used are control group method, process control method and ABC Analysis. For the control group cycle counting, the principle revolves around selecting a small group of inventories and conducting a number of counts within a particular period to ascertain the presence of errors and devise ways to eliminate them for ensuring the accuracy of the count. For the process control method, the counter selects a number of locations where to conduct physical counting and then compares the data with the existing inventory records. Discrepancies are noted and a physical inspection conducted to assess the causes. The ABC Analysis assigns counting frequency in accordance with the perceived level of importance, usage and cost amongst other factors. A count frequency is assigned to each item while ensuring that by the end of a certain period all items have to be captured.

Conclusion

Every business, big or small, needs to be constantly evaluated and analyzed in all of its aspects, especially the inventory, if it is up for long run sustainability and growth. So every business organization must know exactly what is cycle counting . Businesses engaged in regular inventory cycle counting are well capable of catering to the customer demands and needs any time than those not doing so, so you better decide what level of success and growth you aspire for your business.