Definition: A cycle count is an auditing technique that involves counting a given portion of the total inventory on an ongoing basis in pre-established time periods. Simply put, the company divides its inventory in different sections and schedules different days to audit each section.
What Does Cycle Count Mean?
What is the definition of cycle count? This is widely used since it allows the company to reduce the disruption caused by inventory procedures, which normally requires the ceasing of productive processes throughout the company, by dividing the inventory in different sections that will be separately audited according to a schedule.
The cycles are defined by management and can take place on a monthly, weekly or even daily basis, depending on the size and nature of the items being inventoried. The results of each counting procedure should be reviewed and any differences or errors identified must be addressed and explained promptly. Cycle counts help the company maintain its inventory records up to date and properly valued.
Let’s look at an example for this concept.
The CEO of Goods and Services, LLC, Mr. Mayer, decided to conduct an inventory procedure on the company since there have been reports of missing items and differences between system records and physical checks. Mr. Mayer asked his Supply Chain Manager, Mr. Johnson, to conduct an audit on the company’s inventory, but he specified that company operations couldn’t be completely stopped since there has been a lot of demand for the products the company is manufacturing. Which procedure can be used by Mr. Johnson to comply with Mr. Mayer’s requirements?
This is where cycle counting comes in handy, since they offer a low degree of disruption on current operations, while being effective at reviewing the accuracy of inventory records.
Mr. Johnson should create a cycle count schedule by dividing the inventory in different sections and assigning a given date to each of those sections. For example inventory section one is counted the first week of each month. This cycle will be ongoing to ensure records are as accurate as possible from now on. This solution will comply with each of the requirements established by Mr. Mayer.
Define Cycle Counts: Cycle counting means regularly counting segments of inventory throughout the year to ensure accurate records and simply year end procedures.