Cycle counts is the process of counting certain items of your inventory every few days in such a way that your total inventory items are counted at least every quarter or year.
Cycle count criteria may be based on different criteria such as:
- Control groups. When you make your counts focused on a small control group of items so that based on the errors found you may establish your cycle counting criteria.
- Random samples. Used to control large quantities of similar items
- ABC analysis: the most commonly used procedure which we will describe as follows:
- Take the dollar value of your annual inventory usage for each of the items you carry in stock, and classifying them into three categories: A. the expensive few which should involve the total value of 70% of your items and approximately 10% of the items, B. the medium value items which represent 20% of the value and approximately 20% of your items, and C. your trivial many which represent only 10% of your dollar value but approximately 10% of the value.
- Establish the frequency of cycle counts for each category using the criteria of more frequent counts of your high value items and less cycle counts for your trivial many.
- Establish the number of items to be counted every cycle count period.
My preferred criteria have been counting every cycle count period only the items that had movement during the past period (both entries or issues). The reason why I prefer this method is that inventory records have a higher chance for errors when they have movement. There is a smaller chance for discrepancies when the records have not changed (except in cases of pilferage). Another benefit in applying this method is that the discrepancies detected have probably taken place in a recent period and therefore is will be easier to track them and find the root cause of the mistake.
If you apply this criteria on your cycle counts, you should keep a record of the items that were never counted during the year to make a special cycle count for them.