How to improve inventory accuracy with cycle counting?

Determining inventory accuracy is a key to knowing how closely the official inventory records match the perpetual inventory levels.  The perpetual inventory system allows for maintaining a continual track of inventory and helps to better manage inventory levels. This is important also because the business unit managers and material management personnel have a stronger interest in the accuracy of individual item which ties back having a dollar value that can be documented in the financial statements. Periodic inventory system adjusts for purchases and sales of inventory at the end of the reporting period based on a physical count of inventory on hand. Since capital is heavily invested in inventory, inaccuracy may cause stock-outs of inventory and require a business to carry higher inventory levels than necessary, which requires more capital. Some leading causes of inaccuracy include:

1.    Inaccurate analysis of inventory issues

2.    Shop floor discipline

3.    Ineffective MRP set-up

This is where cycle count comes in and helps to discovers errors in the inventory levels. The counters inspect the inventory at an established cadence and determining accuracy by:

1.    Spreading out the counting workload

2.    Determining the current state of inventory

3.    Finding and correcting inventory record errors

4.    Facilitating a process improvement through root cause analysis

5.    Determining reduction of inventory levels

6.    Continuously measuring accuracy

The business unit managers play a significant role in determining the number of counts per period and the timing of the counts by working with an inventory audit firm to schedule for cycle counts