Cycle counting is a partial inventory check that estimates the level of all inventory without counting every item in stock. It can be performed at regular intervals or based on items with the most sales weight. It is essential for accurate inventory management.
A cycle count is an inventory management procedure in which workers count only part of a company’s inventory as a representation of all inventory. This allows for a relatively accurate reproduction of a complete inventory count in only a fraction of the time. The best time for a business to perform a cycle count is sometime other than regular business hours, because inventory is the most stationary during that time. There are many methods that businesses can use to perform such a count, such as counting certain parts of inventory at regular intervals or basing the frequency of counts on the items that account for the most sales.
Inventory management is a must for every business that has a warehouse or other storage center that contains the goods and products they sell. If actual inventory on hand doesn’t match what business records show, the company could have sudden shortages or unnecessary surpluses. The standard for inventory control is a complete inventory count at least once a year, but that leaves long periods of time where inventory levels may be inaccurate. A cycle count is one way to counter this situation.
The concept behind a cycle count is similar to the theory behind a typical survey. When a survey is conducted, a small part of a population speaks for the entire population, with a margin of error included to qualify the results. By doing a partial inventory check, a company can arrive at an estimate of the level of all of its inventory without going through the extensive task of counting every item in stock.
One way to perform a cycle count is to do a geographic inventory count. This requires certain parts of the store to be fully counted at regular intervals throughout the year. Even if some of the inventory items are moved to different parts of the warehouse, these discrepancies will usually even out over the course of regular checks. The accuracy of the geographic method depends on the accuracy of counts for specific areas.
Another popular method companies use to perform a cycle count is to rank inventory items in terms of sales weight. In other words, a small percentage of the items in inventory often make up a large percentage of sales. These items should be counted on a semi-regular basis. Similarly, a large percentage of inventory is likely to actually make up only a small part of a company’s sales. To improve efficiency, this large and relatively inefficient portion of inventory only needs to be counted rarely.
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