Where an organization has a large volume of inventory – carrying out regular checks to ensure that the correct stock is available can become problematic and time consuming.

Cycle counting is a popular tool that can be used to aide the process, putting in a structured system to prove the accuracy of stock information. Strictly speaking, cycle counting is a sampling technique where certain parts of the inventory are reviewed and the results used to imply the robustness of the inventory as a whole.

The typical process is that the ERP system will generate a list of inventory locations to audit, these will be inspected and findings entered back into the ERP system. For example – The ERP system may say to check stock Location A1001 which should have 987 of part ABC123 – the location is inspected and it’s found that 980 parts are present – this information is relayed back to the materials controller who will make the necessary amendments (-7) in the ERP.

Cycle counting using random samples

Perhaps the most common implementation of cycle counting is that of utilizing a random sample.

This means that at each check a random location is selected (typically by the ERP system) the locations are then checked and the results fed back in. This routing happens periodically (in many organizations this is done daily with a set percentage target of inventory to be verified over a given period).

An alternative approach is to conduct several random sample checks to achieve a level of comfort over the findings and then conduct the cycle count on a particular product or range of stores locations using those results as the indicator for the larger warehouse. This method works well where the warehouse is full of comparable products but less so where there is product diversity.

ABC driven cycle count process

ABC Analysis is a method that is often used to segment inventory. Where the organization has an inventory that is diverse in product type and cost – traditional cycle count processes are not appropriate as they do not account for values.

ABC typically segments inventory by cost with the most expensive items being categorized as ‘A’ items and so on.

Before undertaking a ABC driven cycle count process an ABC analysis will need to be carried out (in many ERP systems the results can be stored within the database to help drive cycle count processes.) The structure of the cycle count is that the ‘A’ Class items will be checked / counted more frequently than the ‘B’ items which in turn will be counted more than the ‘C’ class items.

Problems with cycle count processes

Cycle count processes are not without their issues.

• The process can be particularly resource hungry for organizations with large warehouses/inventories
• Administration involved in producing check sheets where it cant be automated
• The inventory accuracy of items not counted may be low and counted items may not be representative of the overall inventory
• Write on / Write Off processes and financial authorisation to change stock figures need to be robust

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One Response to “Introduction to Cycle Counting as an inventory management process”

  1. Key Ways You Can Improve Your Warehouse Picking Process : supplychain-mechanic.com on July 12th, 2010 8:31 pm

    […] distance between different locations which means that productivity for tasks like picking and stock cycle counting can be greatly improved. The downside to this is that it takes a lot of monitoring to check that […]

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