Maintaining an inventory of supplies and materials is a large expense for a business. The accuracy of that inventory ensures the company has materials on hand to make products and that funds are not tied up in unnecessary materials. An accurate inventory count also allows companies to order only enough materials to meet customer demand.
Definition of Cycle Counting
Cycle counting is a method of counting an inventory that takes a physical inventory of a percentage of the materials, parts and supplies each day. During the course of a year, the total inventory is counted a minimum of one time. Cycle counting also verifies the accuracy of quantities in an inventory database throughout the year.
Cycle counting an inventory allows the company to correct the inventory database after discovering inaccuracies in the count. In addition, cycle counting investigates the root cause of inventory discrepancies. The root cause analysis allows the company to change processes for transacting inventory to prevent inaccuracies. For example, when cycle counting discovers an inaccuracy in an inventory record because workers fail to keep track of waste material or defective parts, the company may then put into place a process for disposing and calculating scrap or waste materials at the end of each work shift.
Various departments within the company, such as production, purchasing, planning and accounting, benefit from a cycle counting program and accurate inventory records. Purchasing relies on current and accurate inventory records to maintain the appropriate levels of materials and supplies to build product. The planning department must have accurate inventory information to schedule production and ensure customer demands are met. The production department depends on the accuracy of an inventory to ensure the materials are in place to build the product for customers. Companies may also use lean manufacturing processes with a cycle counting system. Lean manufacturing requires the company to order materials according to customer demand. Companies using lean manufacturing rely on accurate inventory records when maintaining minimal quantities on hand. Cycle counting uncovers discrepancies in inventory faster, which uncovers problems in a material movement system quickly.
Companies must determine the frequency of counting when using a cycle counting method. For example, companies may choose to count parts or materials with a high value more often than those with a lower price. Companies may also choose to count more frequently used items more often. Counting items that the company uses more often uncovers discrepancies caused by frequent handling.