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Michael Violano, CPA, MST
Audit Partner

Make sure your 2024 business plan includes regaining control over inventory count – one of your manufacturing company’s most important metrics. Inventory inaccuracies can lead to stockouts, backlog of sales orders, longer lead times, customer dissatisfaction and other issues that can place many of your goals at risk. One of the most effective ways to prevent these issues is to implement a formal cycle count program. Cycle counting is an ongoing “checks and balances” audit method for owners and management to compare physical inventory counts to inventory records and make the necessary adjustments.

Benefits of Cycle Count

A cycle count program provides manufacturers with a real-time, accurate look at their inventory levels and alerts them to errors, fraud and other issues before they negatively impact the business. Unlike most other full physical inventory count methods, cycle counts can be performed without any closure or disruption of your business. A comprehensive cycle count program also includes ongoing inventory monitoring and employee training that ensures best practices are being followed and keeps inventory counts accurate and easily accessible to management.

Elements of an Effective Cycle Count Program

An effective cycle count program will go far beyond the count itself and have far-reaching impact on your company’s internal controls and culture. At a minimum, a new cycle count program will:

• Assess current inventory control procedures and benchmark them against industry best practices
• Identify the root causes of inventory inaccuracies
• Introduce permanent improvements to the inventory control environment
• Develop a reporting structure for ongoing inventory control
• Implement a regular schedule for conducting cycle count, no less than every one to three months
• Educate staff on conducting root-cause analysis and adopting a “continuous improvement” mindset
• Train staff routinely on manual cycle count procedures and scanning equipment
• Continuously evolve as your business grows and new product offerings are added

Don’t wait until your annual inventory observation to find out where your inventory counts fall short. Implementing a cycle count program can help you proactively identify inefficiencies, improve inventory controls, enhance staff performance and drive continuous improvement at your manufacturing company.

For more information, please contact Michael Violano, Partner in Grassi’s Manufacturing & Distribution practice.