Integral Logistics Management — Operations Management and Supply Chain Management Within and Across Companies

11.1.3b Periodic Inventory and Cycle Counting

Intended learning outcomes: Differentiate between the periodic physical inventory procedure and the cycle counting procedure.

Continuation from previous subsection (11.1.3)

Periodic inventory is a physical inventory taken at a recurring, fixed interval, usually at the end of the organization’s fiscal period (for example, the end of the calendar year).

Periodic inventory follows the procedure outlined in Figure

1Shut down the warehouse.
2Physically count the stock quantities of randomly selected partial item quantities or all items. Check the results.
3Compare physically counted quantities to the quantities recorded in the inventory accounting system. Perform a deviation analysis.
4In case of significant deviations, first verify correct entry of inventory quanti­ties. If this pro­duces no results, re-perform the entire physical inventory, including the deviation analysis.

Fig.       Periodic physical inventory procedure.

The partial quantities of items to be inventoried are chosen in such a way that any deviations within these partial quantities will be representative for the entire quantity of the items.

For some firms, it is too costly to shut down the warehouse entirely, even for a few days. Sometimes the production rhythm does not permit it, or there is a lack of qualified employees for the physical inventory. Here, cycle counting, or even perpetual inventory, is important.

In Cycle counting, according to [ASCM22], physical inventory is counted on a cyclic schedule, a regular, defined basis (often more frequently for high-value or fast-moving items and less frequently for low-value or slow-moving items).

The items determined by the cyclic schedule are mostly counted at the end of a workday, by a procedure similar to the one outlined in Figure

1Count every item periodically, in fixed cycles. The length of a period may vary, depending on the type and importance of the item. Count high-cost items more often than cheap ones.
2During the counting procedures, put a transaction freeze on only those items that are being inventoried at that particular moment. This will be a small percentage of all items. Further­­more, generally perform the physical count at the end of the working day, in other words, at a time at which the inventory transactions for the current day have already been executed.
3Select employees for the task who are trained and experienced. This reduces the probability of errors.

Fig.       Cycle counting procedure.

The method of comparison is the same as the one described above. A deviation analysis is performed for every counting cycle. It is also possible to count a random selection of all items for each cycle. After correction of any counting errors, the analysis is accepted, and the items can once again be released.

Some firms close the warehouse at the end of a working day for half an hour. They then in­ven­tory a random quantity of items and perform the deviation analysis. Usually, the same employees who have worked with receipts and issues during the day perform the counting.

Course section 11.1: Subsections and their intended learning outcomes

  • 11.1 Stores and Inventory Management

    Intended learning outcomes: Present characteristic features of stores management. Produce an overview on inventory transactions. Describe physical inventory and inventory valuation.

  • 11.1.1 Characteristic Features of Stores Management

    Intended learning outcomes: Present in detail characteristic features such as storage location ID, storage type, valuation basis, stock organization, embedding in the flow of goods, storage management principle, inventory issuance principle, and inventory control principle.

  • 11.1.2 Inventory Transactions

    Intended learning outcomes: Differentiate between perpetual inventory and book inventory. Produce an overview on the sources of planned and actual inventory transactions.

  • 11.1.3 Physical Inventory and Inventory Valuation

    Intended learning outcomes: Identify physical inventory, inventory adjustment, and inventory valuation. Present an example of a stock inventory list.