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Cycle counting is a technique of vital importance to anyone responsible for effective manufacturing and distribution planning and control. A basic understanding of the subject is essential for maintaining a high level of record accuracy.

The objective of cycle counting is not counting but to get accurate records. If this can be assured without counting, then this is the ultimate objective.

The Case for Accurate Records

Inventory records must be accurate in order to make valid planning possible, maintain satisfactory customer service, determine replenishment of individual items, release pro­duction authorizations, and analyze inventory.

Inaccurate inventory records can result in lost sales, short­ages, excesses, missed schedules, low productivity, late delivery, excessive expediting, and excess freight costs. Inaccurate inventory records can also lead to over-ordering, which causes high inventories and high obsolescence.

Requirements for Accurate Records

Accurate records depend on a good system for recording all receipts and disbursements that affect inventory balances, qualified people, effective audits, and timely correction of causes of errors.

What Is Cycle Counting?

Cycle counting is the sample counting of a few selected items frequently, testing their record accuracy, and iden­tifying and eliminating causes of errors in the records. It reflects improvement of the quality of records over time.

Disadvantages of Periodic Inventory

Cycle counting eliminates significant disadvantages of the periodic physical inventory. Most people assigned to count during a periodic physical inventory are unfamiliar with the inventory items, counting methods and reconciliation techniques. Frequently, as many errors are introduced into the records as are corrected. The plant and warehouse must be shut down for inventory which disrupts opera­tions. At inventory time it is usually too late to find out what happened, much less to identify and correct the causes of errors.)

How Accurate Should Your Records Be?

An acceptable level of accuracy is based on a value judg­ment. It is usually expressed as the percentage of items where the inventory record does not differ from the actual count by more than a specified tolerance. The target level of accuracy should be 100%.

Initial Phase of Cycle Counting

Prior to initiating a full scale cycle counting program, a small sample of items should be selected which can be cycle counted repetitively as part of the daily activities of store­keepers. The objective is to select a small sample which will detect the causes of errors.

Select some purchased items, some manufactured items, some similar in appearance, some small and numerous but difficult to count and some which experience a changing unit of measure from ordering through receipt into stock. After counting these items, verify that the inventory record is correct. Then reconcile and adjust the records.

Count the same item at some interval short enough to insure that only a few transactions need to be studied and that only recent history needs to be investigated to detect the causes of errors.

When the sample test group can be maintained essentially error free, expand the program into a regular full scale cycle counting operation.

During the initial phase of cycle counting problem areas can be identified by answers to the following questions:

• Is storage space adequate?
• Are items stored in an orderly manner to facilitate counting?
• Are items properly identified?
• Is access to storage area limited to authorized personnel?
• Is there an effective storage plan?
• Is there a locator system and is it operating effectively?
• Is obsolete, scrap, and inventory pending quality con­trol disposition segregated from "good" inventory?
• Is the system for reporting daily inventory transac­tions effective?
• Is responsibility for reporting inventory transactions clearly defined?
• Are inventory classifications compatible with the fi­nancial accounting system?

To be Continued