Cycle counting and the annual physical inventory are the two primary methods of auditing and validating aggregate inventory. The big difference between the two is that cycle counting can lead to improvements in inventory accuracy and inventory processing improvements.
We will start with the APICS Dictionary definition of the cyclical counting technique, then
Cycle counting-An inventory accuracy audit technique where inventory is counted on a cyclic schedule rather than once a year. (…) The key purpose of cycle counting is to identify items in error, thus triggering research, identification, and elimination of the cause of the errors.
For the remainder of this article, we will focus on the last sentence in that definition. Those 22 words are the difference between the annual physical inventory and cycle counting.
Researching cycle count errors starts with collecting information through electronic and hard copy record review, contacting people involved for direct interview and physical information found at current and previous bin locations. Empty boxes in bin locations can also carry information in the form of markings or documents that remain in the boxes.
Following the research is the analysis that identifies the source of the error. Error can come from many sources. Here is just a short list
- Placing errors
- Picking errors
- Bill-of-Material errors
- Misidentification errors
- Data entry errors
- Poor revision control, including ECO processing
- Lack of physical inventory security
- Weak inventory requisition processes
- Open (uncontrolled) inventory
This list is just a small portion of all possible sorts of inventory errors.
Elimination of Errors
Error elimination is as varied as the types of errors that occur, so I will not try to identify all the solutions possible. What I will do is share my experience with improving inventory accuracy through error elimination. Once you find a solution to one part error, apply and extend that solution to all parts and all locations by making root cause solutions that permanently eliminate those errors. That is the key to cycle counting and inventory accuracy improvement over time.
APICS Dictionary, 13th Edition