Cycle Counting Part 2

Establishing a 95% inventory accuracy rate has some building blocks, such as:

• Insisting on 100% accuracy.
• Incoming receiving count.
• Double counting pick/pack and issues.
• Recount unless within 10% of the quantity or $500 whichever is the lesser.
• Cycle count every day.
• Cycle count the inventory twice per year.
• Cycle counting the inventory…
  • A Items 4 times per year.
  • B Items 2 times per year.
  • C Items 1 time per year.

I can hear the gasps and “no way” from here.  How can we count inventory twice per year when the annual physical inventory is such a burden.  OK here’s how you do it.

Assume manufacturing and/ or MRO (maintenance repair organization) inventories have approximately 4,000 SKU’s or Part Numbers then utilizing the Pareto Principle the ABC analysis would break out more or less like below.

A = 10%     or      400             count 4 times      or      1600

B = 30%     or      1200          count 2 times      or       2400

C = 60%    or      2400           count 1 time        or      2400

Total           4000                                                6400 items per year

Average working days per year = 221days.

6400 items divided by 221 = 29 items per day.

Additionally, this is not a task you have to take on during the busiest part of your day.  You can easily make this a nighttime or second shift activity if you have one.  This will easily allow you to distribute the workload.

Count on 2^nd shift with 2 employees = 14 items per day per employee or if you don’t like that……..

A = 15%     or      600             count 4 times      or      2400

B = 20%     or      800             count 2 times      or      1600

C = 65%    or      2600           count 1 time        or      2600

Total           4000                                                6600 items per year

Average working days per year = 221days.

6400 items divided by 221 = 30 items per day.

Even if it takes 15 minutes to count 1 SKU then 15 SKU’s can be completed in under 4 hours.

Randomly select the ABC items, here your IT/IS department can generate a small program telling you which items are to be counted utilizing the aforementioned criteria and indicating the stock locations involved.

In order to do this in an above board and transparent manner it is imperative that the daily, weekly, monthly, and year to date data is reported and published including graphics.  Now it’s a simple matter to document the details in a procedure and have operations and finance review, approve, and buy into the process.

The objective of cycle counting is not counting, but to get accurate records.  Inaccurate inventory records can result in lost sales, shortages, excesses, missed schedules, low productivity, late delivery, excessive expediting, and excess freight costs. Inaccurate inventory records can also lead to over-ordering, which causes high inventories and high obsolescence.

Unfortunately, good or bad, inventory is a fact of life in many businesses.  If you engage in one of these businesses, then this post is definitely meant for you.  As long as you have to deal with inventory, you may as well make it as easy as possible.

Your path to business success.