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Cycle count

2.2 Cycle counting by usage only

A cycle count is an inventory auditing procedure, which

falls under inventory management, where a small subset
of inventory, in a specic location, is counted on a specied 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 are
critical 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 even though
it is not an adequate procedure to be used to correct inventory errors, it is an adequate way to identify the root
causes of inventory errors.

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.

2.3 Hybrid
Most cycle counting frequencies are determined rst 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

ABC analysis

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

2.4 Objective counting by surface area

Cycle counting that begins from one end of the store to

the other, based on surface area. Combing over each rack
or shelf, that is assigned per counter. This method requires planning, in which a map of the store is required
and counting forms for the recording of stock information
There are several methods of selecting which items to that will then need updating to the inventory management
count and with what frequency, and each method has system.
strengths and weaknesses.


Determining selection method

and count frequency

3 Automation

Pareto method

To conduct ecient 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 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. Based on user dened criteria, the software will select a number of items to count at specic
locations for the specied period of time. Ideally, these
selections are daily but many companies choose to generate cycle count items weekly. Many companies perform

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 that have little movement are seldom counted.
This sophisticated approach appeals to accountants by
minimizing the variance in inventory value, and is ecient from a supply chain management perspective, concentrating eort 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.

mini physical inventories and call it cycle counts. Instead of using random or system generated part numbers
at specic locations to count, they selectively choose specic 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 eective alternative to true
cycle counting where a company may not have the sophistication to utilize cycle counting software.


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 eective in companies with a well-dened inventory control procedure and
a high degree of inventory accuracy.


[1] Essentials of Inventory Management, by Max Muller



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