Optimal inventory cycle counting

The heart of inventory transactions management involves obtaining an accurate count of on-hand inventories employing different procedures. Among such procedures cycle counting is said to provide better inventory record accuracy for financial control and production planning. However, these procedures use rather arbitrary basis for classifying items and for setting the count frequency within each strata. This paper develops a simple optimization model of inventory cycle counting based on traditional stratified sampling theory. Such a model allows the inventory manager to make statistically supported statements regarding inventory record accuracy so as to meet financial control requirements with a minimum of cycle counting effort. A numerical example is included to illustrate the model.