5 July 2020
Inventory Management 101 – ABC Inventory Cycle
Count Method
Cycle Count is a periodic inventory
audit practice. Inventory are counted or
may be physically checked on a continuous schedule. The portion and frequency are predefined to ensure
counting of each item is at least once in a fiscal year cycle
To implement a cycle count plan, inventory is usually
defines and classes to A, B and C item
Item A are usually schedule to be count at least once
a month. The characteristics:
·
These items are subjected to a strict inventory
control and is usually stored at a secured area in terms of storage
·
These items are holding high inventory cost or
high demand for sales
Item B are usually schedule to be count at least once
every two months. The characteristics are
·
These items have less inventory cost than Item
A
·
These items have a less strict control than
Item A
Item C are usually schedule to be
count at every three months or longer. The characteristics are
·
These items are usually lower inventory cost
than Item B
·
These items have high usage rate with high Reorder
Point value and frequencies
·
These items are usually with bulk purchases
mechanism
Table 1 illustrates how to define ABC and Cycle Count Frequencies via an Excel Spreadsheet.
Table 1 illustrated the formula
1.
Total Cost is Total of
each inventory item (=D2*E2)
2. ABC% (Total Usage) , is the item usage divide
by Total Monthly Run Rate (=G2/$G$11
3. ABC Classification, to classify the ABC base on
inventory unit cost.
If Inventory Cost more than $1000, is item A, if inventory Cost
more than $100, is Item B, if Inventory Cost less than $100, is Item C
4. =IFS(D2>=1000, "A",
D2>100,"B",H2<100,"C")
5. Count Period if each item. Item A is every
month, Item B is every two months, Item C is very three months.
=IFS(I2="A",
"every month", I2="B","every two
months",I2="C","every three months"
About the Author
Grace is a freelancer for Supply Chain Management specialized in
helping companies reducing operation costs and increase profits through optimized
Supply Chain, Sourcing and Procurement Operation.
