Cycle count inventory

By Annapoorna


Updated on: Apr 5th, 2022


3 min read

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Cycle counting inventory is a check-and-balance process used by businesses to ensure that physical inventory counts match inventory records. This strategy entails counting and documenting precise product adjustments regularly.

How to do cycle counting?

It is preferable to create a counting feedback loop whether you do cycle counts, physical inventory counts, or a mix of the two. The counting feedback loop includes the following:

  • Determining the existing status of inventory accuracy standards you want to achieve
  • Carrying out your count
  • Keeping track of differences and looking into the causes
  • Taking steps to enhance the correctness of your work
  • Comparing existing figures and setting accuracy goals

You’ll be able to better manage your inventory process by following this basic cycle counting inventory framework, ensuring that you have correct records for tax and accounting purposes.

Inventory Cycle Counting Process

Cycle counts in your warehouse can be done in one of these four ways:

1. ABC analysis

ABC analysis is the most widely used approach. ABC analysis is based on the Pareto principle, stating that 20% of all factors directly cause 80% of all outcomes. When used in inventory management, ABC analysis assigns a specific value to each product when counting inventory. Based on sales volume or profitability, the essential SKUs (stock-keeping units) are “Class A” inventories in ABC analysis. The second-most essential inventory items are termed “Class B”, and the least essential items are classified as “Class C”.

2. Opportunity based

Transactions are the focus of the opportunity-based technique of cycle counting. When an object changes or moves, a count is performed.

3. Process-based

Cycle counting based on a process allows managers to pick which things or locations to count during each period.

4. Location-based

Items are tallied based on their actual placement inside the warehouse, with the long-term objective of counting all shelves.

Inventory Cycle Counting Benefits

1.  Accurate information

When inventory records are incorrect, orders for excess supplies are frequently issued, ensuring that things will be available when needed. Excess inventory raises carrying costs and increases the number of goods on hand.

2. Increased transparency

Increased transparency lowers the cost of expedited shipment to compensate for lost time dealing with erroneous inventory information.

3. Reduced interruption of operations

There is no need to shut down operations to count inventory because only small quantities are counted at a time.

4. Fewer errors

Frequent counting enables any disparities to be identified and remedied faster, decreasing the likelihood of errors. Regular counting also helps in detecting theft, allowing countermeasures to be implemented.

Cycle counting challenges and risks

If the cycle counting inventory procedure isn’t performed correctly, cycle counts, like conventional physical inventory counts, might result in inaccuracies. Errors can be caused by many locations per item, work in progress, and delays in paperwork processing. Correct cycle counting inventory methods that define the component number to be counted and the place it should be in can help solve this problem. Only firms with a well-defined inventory control method and a high level of inventory accuracy can benefit from cycle counting.

The accuracy of your stock information depends on including a cycle count into your routine inventory management procedure. Customers want to know that your product availability information is thorough and reliable. Regular cycle counts can help you maintain inventory accuracy.

About the Author

I preach the words, “Learning never exhausts the mind.” An aspiring CA and a passionate content writer having 4+ years of hands-on experience in deciphering jargon in Indian GST, Income Tax, off late also into the much larger Indian finance ecosystem, I love curating content in various forms to the interest of tax professionals, and enterprises, both big and small. While not writing, you can catch me singing Shāstriya Sangeetha and tuning my violin ;). Read more


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