The Bee Hive

Cycle counting is the process of verifying the on-hand quantity of a specific number of stock products every day. In previous articles, I have described how to set up and maintain an effective cycle counting program and why this process is usually better than a full physical inventory for maintaining an accurate perpetual inventory in your computer system. But verifying on-hand quantities is only one of the advantages of cycle counting. The other benefit of a cycle counting program is to improve your business processes, including:

• Making sure that all material movement is properly recorded.

• Ensuring that stock receipts are put away in the proper location.

• Verifying that the right quantity of the right item is shipped on outgoing orders or is pulled from stock for an assembly.

• Preventing shrinkage from theft and the mishandling of stocked items.

Process improvement results from carefully analyzing significant stock discrepancies. A discrepancy is the percentage difference between the actual quantity physically counted and the stock level in the computer system at the time of the count:

[Absolute Value of (Quantity Counted – Current Stock Level)] ÷ Current Stock Level

Including the "absolute value" of "Quantity Counted – Current Stock Level" in this equation signifies that a discrepancy should be analyzed if significantly more or less inventory is found during the cycle counting process. For example, assume that a distributor has a cycle count tolerance percentage of 5%.