Managing inventory in a fast changing environment is never easy. That being said, many companies choose to engage in periodic partial inventory counts known commonly as ‘cycle counting.’ The idea is that by counting a select subset of your total inventory, you can keep tabs on the most critical or sensitive items without the time and effort required for a full inventory.
An article in APICS Magazine (Sep/Oct ’16 issue) reminds us that cycle counting is a closed loop process. Done correctly, it is comprised of the following five steps:
- Assess the current state of inventory integrity and set target accuracy levels. Begin by validating that key elements like locations, procedures for receiving, put-away and picking, and transaction management are being done properly.
- Perform the cycle count. A select number of items are counted each day (or cycle).
- Track variance causes. Compare physical counts with book balances. Investigate imbalances and assign reason codes for variances. Drill down with warehouse managers to determine root causes, selecting items for recount as needed.
- Continue improving accuracy levels. Over time, inventory control must determine the accuracy of the items counted. Obviously, the goal is to see accuracy rise as the cycle counting process takes root in the organization.
- Compare current and target accuracy levels. As tighter inventory accuracy controls are achieved, the likelihood of variances decreases as do the number of items that need to be counted.
Among several approaches to cycle counting, the most common is the ABC classification method. As in: we count the “A” items first and most frequently, the “B” items next and less frequently, and the “C” items last (within a category or classification) and least frequently. The ABC method has four key elements:
- Item classification: Separate items into groups based on your criteria, i.e., value or transactions
- Inventory accuracy targets: i.e., 98 or 99% for each classification
- Cycle count interval: when and how many items in a classification are considered complete?
- Probability of variance: the chances that an item will experience a discrepancy
It’s worth noting that these cycle counts can be performed in several different ways, depending on things like location preferences or special criteria. These may include:
- The Zone Method: Particularly good for items with fixed locations. The count schedule starts with the first location in a zone and continues daily until the last location is reached. Then, the count begins again at the first location.
- The Location-Audit Method: Best used when items are stored randomly. Here, a set number of locations is counted and their inventory counts are validated each day.
- The Special-Counts Method: Items are selected to be counted based on criteria such as negative or zero balances, shipment or receipt of items, fill shortages, etc.
Of course, the devil being in the details, the above is the desired process. But when you factor in what can go wrong, unexpected variances and incomplete processes, it’s all easier said than done.
To drill down on that topic, you should read the full article – which requires that you be an APICS member. You can check them out here.