What is a Cycle Count?

A cycle count is an inventory management procedure in which workers count just part of a company's inventory as a representation of the entire inventory. This allows for a relatively accurate reproduction of a complete inventory count in just a fraction of the time. The best time for a company to conduct a cycle count is sometime other than regular business hours, because inventory is the most stationary during that time. There are many methods companies can use to perform such a count, such as counting certain parts of the inventory at regular intervals or basing the frequency of the counts on the items that account for most of the sales.

Inventory management is a must for all companies that have a warehouse or other storage center containing the goods and products they sell. If the actual inventory on hand doesn't match what business records show, the company could have sudden shortages or wasteful surpluses. The standard for inventory control is a complete inventory count at least once a year, but that leaves long spans of time in which inventory levels may be inaccurate. A cycle count is one way to counteract this situation.

The concept behind a cycle count is similar to the theory behind a typical survey. When a survey is taken, a small part of a population speaks for the entire population, with a margin for error included to qualify the results. In doing a partial inventory check, a company can arrive at an estimate for the level of its entire inventory without undertaking the large task of counting every item in stock.

One way to conduct a cycle count is to do a geographical count of the inventory. This requires that certain portions of the warehouse are completely counted at regular intervals throughout the year. Even if some of the inventory items are moved to different parts of the warehouse, these discrepancies will generally balance out over the course of regular checks. The accuracy of the geographic method depends on the accuracy of the specific area counts.

Another popular method companies use to perform a cycle count consists of ranking the items in inventory in terms of sales weight. In other words, a small percentage of the items in the inventory often accounts for a large percentage of sales. These items should be counted on a semi-regular basis. By the same token, it's likely that a large percentage of the inventory actually makes up just a small part of a company's sales. To improve efficiency, this large, relatively ineffectual portion of the inventory need only be counted on rare occasions.