Does your company still bring all of your employees in early on a Saturday morning to perform a full physical inventory count, spending a few hours counting and the remainder of the day (and evening) investigating discrepancies? This process can create more problems than solutions if companies utilize personnel who are not familiar with the inventory and everybody just ‘goes through the motions’. Although the annual physical inventory count is as much of a tradition in many companies as pot-luck lunches or the annual holiday party, there may be a better and more efficient way.
Under an inventory cycle counting program, you count smaller segments of inventory in recurring cycles instead of counting it all at once at some point during the year. You can count daily, weekly or monthly, depending how much you want to count each time and how often you want to cycle through the inventory each year. A properly designed and executed program increases inventory accuracy, improves customer service by preventing customer backorders, provides earlier detection of inventory errors or theft, and eliminates the need for an annual physical inventory and the operational shut down and overtime labor that come with it.
An effective cycle counting program must be customized to your inventory. You can focus a program on high sales volume inventory, high cost inventory or some other subjective assessment of the relative importance of certain inventory items to your business operations. You can also opt for a geographic approach, counting a defined area of your storage area each time.
Levin Swedler & Company can help you evaluate whether an inventory cycle counting program would benefit your company, and provide guidance on the design, implementation and evaluation of a successful program.
Written by: Todd M. Kennedy, CPA