Cycle counting is the process of counting certain items in inventory every few days in such a way that all the items in inventory get counted at least once every twelve weeks. Physical counting, on the other hand, is a process of counting the entire inventory in a facility and correcting inaccuracies in inventory records - this is a much more invasive process, and can put your entire operation on hold.
Best practices in Inventory Cycle Counting that can make the process more effective:
1. Cycle counting should be a part of the normal operations of the facility.
2. Cycle counting should be scheduled to be done as frequently as possible. The higher the frequency of cycle counting, the higher will be the accuracy of inventory and lower will be the inventory write-offs.
3. A proper classification of items into ABC groups should be done. Item classification should be reviewed periodically (monthly/ quarterly). Generally accepted rules of thumb are that Group A should comprise of about top 70% of inventory value, group B next 15% and Group C the bottom 15% of inventory value. The best way to base ABC classifications is on value of shipments and value of inventory at hand.
4. The assignment of dedicated cycle count teams allows the company to train a number of individuals in the organization to perform these tasks. The size of the team will be dependent on the size and complexity of a company’s inventory. A large organization could have a cycle count team of several full time employees, while a smaller organization could have as few as two employees that perform cycle counts for a small part of their work day and perform other daily tasks as well.
5. It is recommended that on an average every product should be counted at least once every quarter.
6. Items should be counted by two individuals working independently of one another, and a blind comparison of their counts should be made before adjustments are recorded.
7. Before cycle counting is performed all open transactions such as receiving, shipping, WIP, should be closed out for the items that are selected for cycle counting.
8. Sources of error should be investigated and action should be taken to prevent those errors from occurring in the future. It is crucial to identify and fix process or training issues that cause inventory errors.
9. Inventory accuracy metrics should be tracked over time and targets set for inventory accuracy.
10. Coordination of activities of items being counted is critical in cycle counting. Either all transactions of items being counted should be put on hold, or effective processes should be in place so that all activities are correctly recorded and reflected in system as soon as possible.
11. Cycle counting should be done at the start of the day before the operations of the facility have begun in full-swing.
12. Cycle counting process should be well-defined and documented.
Best practices in Physical Counting or Physical Inventory that can improve the effectiveness of cycle counting:
1. Mock count should be carried out during the planning stage of the physical counting to accurately estimate the time and resources required for the count.
2. Suppliers, customers and production should be informed about physical counting schedule so that any adjustments to supply can be made in advance.
3. Physical counting of slow moving SKUs should be conducted few days before the actual counting takes place to minimize the amount of time the facility has to be shut down for the physical inventory. These SKUs should be tagged and transactions on these SKUs should be frozen until the counting is complete.
4. All defective and obsolete inventories should be disposed of before the physical counting is undertaken so that the time spent on this process is reduced.
5. Economical values of SKU quantities should not be displayed during counting and entering count quantities.
6. Designated counting areas are the basis for count team assignments and for monitoring the progress of the inventory.
7. Proper equipment as well as specialized devices should be made available.
8. Staff should be trained properly in physical counting activities to ensure smooth progress of the counting. Personnel who know the facility well should be deployed for the physical inventory.
9. Ideally, operations should cease completely for the count. If that is not possible, at least the movement of the materials should be minimized and well documented to ensure the items are not double-counted or conversely, omitted altogether.
10. Systems staff should be available for support, if system issues are encountered during physical counting activities.
[Improve physical counts further with these warehouse optimization tips]
Cycle counts in review
A well-executed cycle and physical counting program can lead to significant reductions in operational and inventory carrying costs. With increase in inventory accuracy, safety stock levels can be reduced thereby reducing inventory carrying costs. Try out some of tips - and if you have any more, let us know in the comments!