What is Cycle Counting
Cycle counting is the systematic counting of a small portion
of the total inventory on a periodic basis; generally defined as daily or
weekly. Cycle counters are typically experienced personnel who are
familiar with both the products on-hand and the facility layout, and conduct
the counts as a part of their daily routine. A consistently high level of
inventory accuracy can be realized by the continual counting of the inventory,
thoroughly investigating and analyzing the root cause of any inventory errors
identified by the cycle count results and then taking immediate corrective
action to eliminate the cause.
The Benefits of conducting cycle counting are
1. Improved inventory
accuracy & integrity is maintained at a higher level due to continuous
2. Elimination of
lost sales due to stock outs and/or shorts resulting from misplaced product or
zero on-hand when the inventory system says product is available.
3. Elimination of the
cost and business interruption associated with the annual/semi-annual physical
4. Reduction in
inventory errors due to discrepancies being identified and corrective action
taken sooner than once or twice a year leading to improved inventory accuracy.
5. Overall reduction
of safety stock levels and associated carrying costs through improved inventory
What & When:
There are a number of cycle counting methodologies commonly
in use today that can be considered when you are determining what should be
counted and when. Accountants generally prefer the dollar valuation
method since the results are more easily tied to their book value of inventory
while materials managers would likely prefer the unit volume method so that the
manufacturing requirements planning systems get the most accurate inventory
information to avoid stock out conditions that would interrupt manufacturing
Dollar Valuation This
method emphasizes that items that make up the top 20% of the annual sales
should be counted more frequently. This is typically accomplished by
using the ABC method of cycle counting that is based on the Pareto
Principle. 20% of your annual dollar volume items generally represent
80% of your total annual dollars shipped. The ABC method uses a
classification system to determine count frequencies. The items that
represent the top 20% of your sales are assigned a classification of A, while
the items that represent the next 15% of your sales are classified as B
items, with the last 5% of your sales representing the items being assigned a
classification of C. A further classification of D is sometimes
assigned to items that have $0 sold over the previous year.
The basis for determining the count
frequency should be to count the A items more frequently than the B items
with the C items counted the least frequently. All items should
be counted at least once per year. Generally we have found that A
items are assigned to be counted 6-8 times per year, B items 3-4 times per
year, C items 1-2 times per year and D items counted once per year.
Unit Volume This method is
based on the concept of 20% of the items account for 80% of the total usage
without regard for their value. The ABC method of cycle counting can be
used to determine what should be counted and when by using the classification
system as it applies to item usage rather than dollar value. This
approach is particularly beneficial to materials managers that want to insure
that the materials planning systems are getting the most accurate inventory
data possible to prevent interruptions to manufacturing as a result of stock
Location is a very simple
method of beginning at one end of the warehouse and working your way to the
other end in sequential location order. This method is usually effective
if your items are in single fixed locations.
Clean & organize storage areas
Identify all products by insuring that each item is clearly
Develop a storage location method and mark each location
with a unique identity by area, aisle, row, and bin.
Produce a cycle count report that contains the items to be
counted with a description, and expected location(s).
Initiate control cut-off rules that permit sufficient time
to complete the count with minimal impact on operations.
Implementation of the process:
It is generally best to start the cycle counting process by
beginning with a small number of items that can be effectively monitored for
results. The counting process should be done frequently to accustom your
staff with the process. When discrepancies are encountered the root cause
should be identified and corrective action taken to rectify the problem
promptly. Once the employees have become familiar with the process and
the inventory accuracy improves it should be much easier to expand the number
of items counted until the entire inventory is included.