Cycle Count - Wikipedia, The Free Encyclopedia

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en.wikipedia.org/wiki/Cycle_count

Cycle countFrom Wikipedia, the free encyclopedia

A cycle count is an inventory auditing procedure, which falls under inventory management, where a small subset o

inventory, in a specific location, is counted on a specified day. Cycle counts contrast with traditional physical

inventory in that a full physical inventory may stop operation at a facility while all items are counted 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, higher movement volume, or that arecritical to business processes. Cycle counting should only be performed in facilities with a high degree of inventory

accuracy (greater than 95%). The purpose of cycle counting is to verify the inventory accuracy and is not an

adequate procedure to be used to correct inventory errors.

Contents

1 ABC analysis

2 Determining selection method and count frequency2.1 Pareto method

2.2 Cycle counting by usage only

2.3 Hybrid

3 Automation

4 Dangers

5 References

ABC analysis

Most cycle counting applications use ABC analysis, segregating items into various count frequencies.

etermining selection method and count frequency

There are several methods of selecting which items to count and with what frequency, and each method has

strengths and weaknesses.

Pareto method

The Pareto method, derived from the Pareto principle, is to cycle count inventory by percentage of inventory value

(cost multiplied by usage for period). Items with a higher determined value are counted more often, while items tha

have little movement are seldom counted.

This sophisticated approach appeals to accountants by minimizing the variance in inventory value, and is efficient

from a supply chain management perspective, concentrating effort on higher volume of use items.[1] The main

shortcoming is that low value items may be ignored and cause an entire assembly line to halt while a minor

component is re-ordered.
http://en.wikipedia.org/wiki/Accountantshttp://en.wikipedia.org/wiki/Pareto_principlehttp://en.wikipedia.org/wiki/Cycle_count#Referenceshttp://en.wikipedia.org/wiki/Cycle_count#Dangershttp://en.wikipedia.org/wiki/Cycle_count#Hybridhttp://en.wikipedia.org/wiki/Cycle_count#Cycle_counting_by_usage_onlyhttp://en.wikipedia.org/wiki/Cycle_count#Pareto_methodhttp://en.wikipedia.org/wiki/Physical_inventoryhttp://en.wikipedia.org/wiki/Physical_inventoryhttp://en.wikipedia.org/wiki/Assembly_linehttp://en.wikipedia.org/wiki/Cycle_count#cite_note-1http://en.wikipedia.org/wiki/Supply_chain_managementhttp://en.wikipedia.org/wiki/Accountantshttp://en.wikipedia.org/wiki/Pareto_principlehttp://en.wikipedia.org/wiki/ABC_analysishttp://en.wikipedia.org/wiki/Cycle_count#Referenceshttp://en.wikipedia.org/wiki/Cycle_count#Dangershttp://en.wikipedia.org/wiki/Cycle_count#Automationhttp://en.wikipedia.org/wiki/Cycle_count#Hybridhttp://en.wikipedia.org/wiki/Cycle_count#Cycle_counting_by_usage_onlyhttp://en.wikipedia.org/wiki/Cycle_count#Pareto_methodhttp://en.wikipedia.org/wiki/Cycle_count#Determining_selection_method_and_count_frequencyhttp://en.wikipedia.org/wiki/Cycle_count#ABC_analysishttp://en.wikipedia.org/wiki/Physical_inventoryhttp://en.wikipedia.org/wiki/Inventory


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Cycle counting by usage only

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. This method may

be biased against counting higher value inventory or require additional counting to satisfy accounting requirements.

Hybrid

Most cycle counting frequencies are determined first by Pareto frequency analysis, and then changing the count

frequency, or ABC code, as needed per item is based on per piece value, how critical the part may be, or other

factors. This method requires manual arrangement and is not statistically pure since arbitrary adjustments can be

made.

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 mobilecomputers 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. Based on user defined criteria, the software will select a number of items to count at specific

locations for the specified period of time. Ideally, these selections are daily but many companies choose to generat

cycle count items weekly. Many companies perform "mini" physical inventories and call it cycle counts. Instead of

using random or system generated part numbers at specific locations to count, they selectively choose specific

locations and count everything in those locations. As part of their procedures they rotate throughout the plant with

the intention of counting every location a minimum of once each year. This is an effective alternative to true cycle

counting where a company may not have the sophistication to utilize cycle counting software.

angers

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

item, work in process, and lag in paperwork processing can each contribute to errors. This problem can be

mitigated with correct cycle count procedures that specify not only the part number to be counted but also the

location it should be in. Cycle counting is only effective in companies with a well-defined inventory control

procedure and a high degree of inventory accuracy.

References

1. ^ Essentials of Inventory Management, by Max Muller (p.188)

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