The following short dialog between consultant Julia and inventory manager Finn introduces cycle counting.
Cycle counting is a special physical inventory procedure where specific materials are physically counted at regular intervals within a fiscal year. The cycle counting procedure is a full physical inventory: all stock management units are counted at least once a year.
The cycle counting starts with the classification of materials:
- Step 1: Define Counting Frequencies
Start by establishing different counting frequencies based on material importance or movement. For example, you might count certain materials monthly (12 times a year), others every two months (6 times), some quarterly (4 times), and another group just twice a year.
- Step 2: Create Cycle Counting Indicators
Your configuration expert sets up a cycle counting indicator in the system for each defined frequency. These indicators serve as the link between materials and their assigned counting intervals, enabling the system to schedule counts accordingly.
- Step 3: Assign Cycle Counting Indicators to Materials
Finally, each material relevant for cycle counting is assigned a corresponding cycle counting indicator. This assignment is made in the material master record at the plant level, enabling the system to apply the correct counting frequency during inventory planning.
Once materials relevant for cycle counting have been classified, the physical inventory process is carried out similarly to the annual inventory. Counting quantities are recorded using physical inventory documents. These are then compared with the book quantities. If discrepancies are found, the system either posts the differences or initiates a recount, depending on the defined tolerance limits and business rules.