Inventory counting is crucial for maintaining accurate records of all items in stock. Cycle counting is a popular method used by manufacturing companies to reconcile inventory throughout the year. Material codes are used to identify specific parts and supplies. Accurate counting helps minimize production delays and tax burdens.
An inventory count is a process of creating a physical count of each item found in a given inventory. Counts are commonly used with all types of inventory in any type of business setting. The goal of inventory counting is to ensure that all inventory records are accurate. In the event that the physical count and the records disagree, procedures that are in line with company policies and applicable laws or regulations should be used to reconcile such differences.
One of the most widely used forms of inventory counting is known as cycle counting. Manufacturing companies such as textile companies or electronics manufacturers typically have huge inventories of raw materials, finished products, and parts and supplies that are kept on hand to keep manufacturing machinery running. With each of these inventories, the cycle counting approach allows a portion of the inventory to be physically counted during each month or quarter of the year. This allows for progressive physical inventory reconciliation throughout the year and helps minimize the reconciliation process when the full annual physical inventory count is conducted.
With many manufacturing based firms, the machined parts and supplies have been kept on site and are classified under what are known as material codes. Part numbers are often structured to refer to a specific department within the manufacturing facility and the type of machinery using those components or supplies. A trailing part of the part number for each component normally refers to the part number assigned by the part manufacturer. When conducting a cycle count, a specific number of material codes are selected and each item is physically counted. When the physical count is greater or less than the count reflected in the inventory list, a note is created and the list is reconciled to the actual count, after the appropriate documentation has been filed to account for the discrepancy.
Conducting an inventory count is essential for two main reasons. First, counting avoids situations where one or more machines require spare parts and those parts are believed not to be in physical inventory. As a result, the production process is delayed for shorter periods of time and production levels can be achieved more easily. At the same time, maintaining an accurate count minimizes the chances of building up a larger inventory than necessary and generating a larger tax burden from that larger inventory.
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