Cycle counting: an alternative to year-end physical inventory

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cycle counting, inventory, business, accounting, auditWith the close of 2016, did you question why you do a full physical count every year? Did you wonder if there was a better way to achieve the same result instead of having your employees come in early, stay late, and possibly closing your doors during regular business hours? If your company maintains inventory, one key control over inventory is the performance of a full physical count at the end of the year. However, you can achieve the same result, through an ongoing counting system, or cycle counting. Cycle counting is a perpetual counting system in which you count a small portion of inventory on a daily/weekly basis throughout the year. Cycle counting is counting sections of inventory, in a specific location, on a particular day or over the course of the week. Furthermore, some inventory management software provides random generation of certain items to count on a daily or weekly basis. The key to effective cycle counting is counting all inventory items and locations at least once during the year. Of course covering all inventory items and locations more than once during the year is even better!

Certain companies prefer this method, as they can avoid the need to close for a period to perform an annual physical inventory count. Furthermore, as it reduces disruption to operations for a day or multiple days during the year experienced with an annual physical count, it may have cost savings for the business.

Cycle counts have other benefits too. Not only do you save yourself the stress and hassles of conducting a full physical count, you are regularly confirming the accuracy of the inventory in your system. Doing so not only improves the accuracy of the count itself, but also allows for a regular review of each inventory area, allowing you the opportunity to assess your inventory, which enables more informed and directed purchasing. Additionally, the reduced time between counts decreases discrepancies and reduces the time you and your team spend reconciling the error, allowing you to reduce mistakes and better meet the demands of your customers and your business. An added bonus to cycle counting is that it provides confidence in your inventory count throughout the year, allowing you to be more confident in your business decisions. Doing an annual inventory at fiscal year-end does feel like you get a new start for the new fiscal year; however, this is often at the cost of time and human resources. Cycle counting ultimately allows for more productivity, confidence, and accuracy.

If you have previously completed annual inventory counts and want to eliminate the pain this causes, consider whether a cycle count program is right for your business. However, before jumping right into this, you will need to make sure that the program is developed appropriately, which includes collaboration of the operating and accounting departments of the business.

Sherry L. Staggs