Accounting Best Practices, Fifth Edition

16–17. Eliminate the Physical Count Process

As noted in the last section, there are a variety of problems associated with having any sort of physical count at all. This section outlines how to use cycle-counts to completely avoid any physical count.

One should use cycle-counting as the primary way to eliminate the physical counting process. To do so, there are a set of carefully defined steps to follow before inventory reaches an accuracy level sufficiently high to allow one to avoid the physical count. One should read through all of the following steps and make a realistic assessment of a company’s ability not only to complete them, but also to maintain the system over a long period. If it is not realistically possible, then do not run the risk of wasting up to a year of work on this project—there are other best practices in this chapter that pose a much higher chance of success. The steps are as follows:

1.	Throw out the trash. The warehouse must first be cleaned up before spending a great deal of time on counting parts. Accordingly, trash, obsolete parts, and old supplies or tools must either be thrown out or moved to an outlying location.
2.	Identify the remainder. The first step reduces the amount of inventory items to be reviewed for part numbers. This is now the main task—review all remaining inventory and post a part number on it.
3.	Consolidate inventory. Once all parts are identified, cluster them together for easy counting. This takes several iterations before all inventory ...