There are different procedures a business adapts to which fall under inventory management. An example of this procedure is inventory cycle count. This is an auditing procedure in which the physical inventory count on each high value item of the inventory is done without stopping daily business operations. A lender usually requires this inventory information especially for businesses availing for inventory financing.
To calculate inventory using the cycle count, a business must contain a high percentage of inventory accuracy since the procedure focuses on the authentication of this percentage and identification of the roots of errors in the data. Learn the process on how to cycle count your inventory and what benefits it provides.
How to Cycle Count Your Inventory Effectively
The following are the steps you need to follow once you adapt for an effective cycle count for your inventory:
- Schedule counting of inventory by groups. Divide inventory to be counted by groups in different locations by using a schedule similar to how inventory templates in DOC schedules are made.
- Monitor high demand inventories more often. It is best to count those inventory items that affect your business which includes those products that covers 80% of the sales. Most of these items comprise only 20% of the total inventory as stated on a type of cycle inventory method known as the Pareto Principle.
- Create an inventory control guide for personnel. There are printable inventory templates showing different inventory levels that serve as the guide for personnel in cycle counting inventory.
- Follow a item bar code scanning procedure. It is much easier for employees to use an item bar code scanner in counting inventory than manually recording inventory count.
- Conduct an investigation for discrepancies. After the counting is done, analysis on the discrepancies of the inventory count and the set current inventory level for each item is done to determine the causes of the differences in inventory amount.
When to Consider Cycle Count of Inventory
Here are the factors of the inventory of your business which will require you to consider application of a cycle count of inventory instead of the usual annual inventory:
- Inventory errors from annual inventory – You should look into the inventory errors found after the annual physical inventory. Evaluate if the use of a cycle count inventory would help in minimizing those errors.
- Costs of shutdown for physical inventory – Annual physical inventories usually entail the need for a shutdown to cover all the materials and products that need to be accounted for on the year end reports. Compare the results of the investigation on the expenses the business incurs in these shutdowns with the cost of adapting a cycle counting system.
- Labor for cycle counting personnel – Cycle counting requires the need of different personnel to handle cycle counting of different inventory groups. The labor cost for monitoring inventory, like the sample inventory of the illustrated free inventory templates, should be identified.
It solely depends on the decisions of the business if they adapt the cycle count as long as an efficient control mechanism is set in place when managing the inventory of a business.