Cycle count
Encyclopedia
A cycle count is an inventory
management procedure where a small subset of inventory is counted on any given day. Cycle counts contrast with traditional physical inventory
in that physical inventory stops 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 are critical to business processes.
, segregating items into various count frequencies.
, 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 that 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. 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.
, which is part of a warehouse management system
. These systems may include mobile computers 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.
Inventory
Inventory means a list compiled for some formal purpose, such as the details of an estate going to probate, or the contents of a house let furnished. This remains the prime meaning in British English...
management procedure where a small subset of inventory is counted on any given day. Cycle counts contrast with traditional physical inventory
Physical inventory
Physical inventory is a process where a business physically counts its entire inventory. A physical inventory may be mandated by financial accounting rules or the tax regulations to place an accurate value on the inventory, or the business may need to count inventory so component parts or raw...
in that physical inventory stops 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 are critical to business processes.
ABC analysis
Most cycle counting applications use an ABC analysisABC analysis
The ABC analysis is a business term used to define an inventory categorization technique often used in materials management. It is also known as Selective Inventory Control...
, segregating items into various count frequencies.
Determining 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 principlePareto principle
The Pareto principle states that, for many events, roughly 80% of the effects come from 20% of the causes.Business-management consultant Joseph M...
, 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 that 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
Supply chain management
Supply chain management is the management of a network of interconnected businesses involved in the ultimate provision of product and service packages required by end customers...
perspective, concentrating effort on higher volume of use items. The main shortcoming is that low value items may be ignored and cause an entire assembly line
Assembly line
An assembly line is a manufacturing process in which parts are added to a product in a sequential manner using optimally planned logistics to create a finished product much faster than with handcrafting-type methods...
to halt while a minor component is re-ordered.
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 systemInventory control system
An inventory control system is a process for managing and locating objects or materials. In common usage, the term may also refer to just the software components......
, which is part of a warehouse management system
Warehouse management system
A warehouse management system, or WMS, is a key part of the supply chain and primarily aims to control the movement and storage of materials within a warehouse and process the associated transactions, including shipping, receiving, putaway and picking...
. These systems may include mobile computers with integrated barcode scanners that allow the operator to automatically identify items, and enter inventory counts via keypad. The software then transmits data
Data
The term data refers to qualitative or quantitative attributes of a variable or set of variables. Data are typically the results of measurements and can be the basis of graphs, images, or observations of a set of variables. Data are often viewed as the lowest level of abstraction from which...
to a database
Database
A database is an organized collection of data for one or more purposes, usually in digital form. The data are typically organized to model relevant aspects of reality , in a way that supports processes requiring this information...
on a host system
Host system
Host system is any networked computer that provides services to other systems or users. These services may include but are not limited to printer, web or database access.According Kurose-Ross, Host system is another word for end system....
which can generate inventory reports.