If the count is wrong, the value of inventory - which is a major asset for many companies, will be misrepresented. But beyond the immediate financial implications, errors in inventory counts can create problems manufacturing products and fulfilling customer orders. Errors can generate excessive ancillary costs associated with searching for the missing stock and unnecessary expediting of incoming and outgoing materials. It can also drive changes in forecasts while trying to respond to changes in the on-hand balance, resulting in shortages or excess and obsolete stocks. For all these reasons, and more, managing accurate inventories is important.
Our view is that you should cycle count to improve your business operations, not to meet a corporate requirement, and concentrate on the inventory inaccuracies that impact your business the most such as customer service and production. Most ERP and WMS systems have the ability to manage cycle counts using ABC stratification and there are many ways companies choose to stratify. What is the best way to establish your cycle count parameters? Do you establish classifications based on pure value or velocity? Many companies develop a weighting formula that considers both value and velocity. More recently, we are seeing companies developing a list of critical components that have the most impact to their profitability or customer service.