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Posts Tagged ‘cycle counting’

cycle-countIn our prior article we discussed the method behind inventory cycle counting as a way to improve your company’s inventory accuracy.  There we briefly touched upon the most common cycle counting method, known as the “ABC” method.

But it’s worth noting that these cycle counts can be performed in several different ways, depending on things like location preferences or special criteria, as we are reminded in the Sep/Oct 2016 issue of APICS Magazine.  We’ll offer some of their other cycle counting method examples here today:

  1. 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.
  2. 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.
  3. 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.

These methods are among those suggested by David F. Ross in his article for APICS Magazine entitled Cycle Counting by the Probabilities, in the Sep/Oct 2016 issue now available to APICS members.

Inventory is one of the costliest items a business possesses.  We present this information as a service to our many manufacturing and distribution ERP clients because we know that inventory cost saved is ROI regained.  We’re happy to help others with inventory dilemmas, and are strong believers in the principles espoused by APICS in helping to improve our clients’ inventory and production capabilities, methods, profitability and overall success.

 

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apics-coverManaging 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.

A recent 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:

  1. 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.
  2. Perform the cycle count. A select number of items are counted each day (or cycle).
  3. 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.
  4. 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.
  5. 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:

  1. Item classification: Separate items into groups based on your criteria, i.e., value or transactions
  2. Inventory accuracy targets: i.e., 98 or 99% for each classification
  3. Cycle count interval: when and how many items in a classification are considered complete?
  4. Probability of variance: the chances that an item will experience a discrepancy

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.

Not a member?  We can help.  (Full disclosure: our client engagement manager is President of our local APICS chapter, and we’re an APICS Company of the Year in our area.  But we receive no financial benefit – we simply believe in their mission.  Contact us directly for information on how to become a member of APICS, or check them out here.

 

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cycle count NAV“Cycle counting is most effective when it triggers research, identification and elimination of the cause of errors.”  That’s the counsel given by Andrew Stein, CPIM, in an article entitled “Warehouse Measurement and Control” in the current issue of APICS Magazine.  Today we’ll take a look at some of the common strategies — and mistakes – companies make when performing cycle counts.

Cycle counting is an inventory audit procedure that involves counting a specific section of a company’s inventory at a specific time.  It is often a proxy for a full physical inventory count, and involves verifying by count a specific category (e.g., fast moving items) of inventory.  It is less imposing than a full inventory, and is usually done in facilities where inventory accuracy is already known to be good.

Stein starts from the premise that you must take a holistic view of the business, not simply a bin-level view.  Too often, cycle counts are seen only as cost drivers, and people apply a get-it-done-quickly mentality, instead of using these counts as ways to discover true business process failure.

He cites as an example reducing stock-outs, where poor inventory accuracy can have a damaging effect on customer satisfaction and retention, more so than is often recognized.

To identify areas and tactics that can help correct inventory inaccuracy, Stein first suggests recognizing cycle counts as a measurement tool.  He considers the example of a part stored in more than one bin, but the cycle count program only picks up the first bin, rendering any adjustment on that part incomplete, which can cause a whiplash effect when the item is written off from the first bin, only to be found in another next month.

Next, take a holistic view: Is every bin for a certain part number short of material?  Maybe you have a theft, package quantity, or receiving issue.  The point is, it’s important to drill down deeply enough to get to root causes.  That’s where the full picture comes into view, and replenishment decisions become more accurate.

When deeper causes are revealed, so too are communication issues in processes which might be eliminated with training.  Perhaps documentation is inadequate.  Does a process need to be standardized?

During this process, engage your warehouse associates in your discovery.  Make them partners in the process, suggests Stein.  Use their knowledge and their insights.

Finally, keep in mind that the goal here is to keep your focus on “achieving a well-designed cycle count program and establishing control mechanisms.”  Consider adding ABC (Activity Based Counting) to your cycle counts, wherein fast moving material is counted when a certain threshold is reached, as well as physically validating that a bin is really empty when your system indicates zero on hand.  While these sound simple and obvious, they’re often overlooked, and with them sometimes, the underlying causes and process issues that can lead to far greater problems.

You can read Stein’s full article in the May/June 2014 issue of APICS Magazine, which is free to all APICS members – a status we recommend to all our clients.

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Herewith, a few tips from based on what we’ve learned from helping clients with inventory issues, and from deploying warehouse management systems to improve throughput.

1. Track where you put things.

It seems so obvious, but you’d be surprised how often we see firms that don’t.  By recording accurately in your ERP system the places (warehouse, bin, store or location) where you put things you gain greater visibility over your stock.   This can lead to insights for improvement.  Are fast-moving items better placed nearer to receiving points or shipping?  Are overstock locations appropriately located?  By using bar code and WMS software, you can quickly and accurately track where the warehouse worker actually put things – not where you think they put them.  Knowing what you have and where you have it is critical to saving money by maintaining the right inventory levels.

2. Use ABC Analysis and Cycle Counting

Cycle counting – the periodic counting of just some of your inventory – is an efficient and more accurate substitute for complete inventory counting.  It eliminates costly warehouse shutdowns required for a full inventory, and the freezing of all business activity often associated with it.  Instead, you count only those items scheduled to be counted based on your pre-defined ‘count calendar.’  By applying ABC logic, you count your fastest moving inventory (your ‘A’ items) more often than your slowest movers (the ‘C’ items). 

You might count As monthly, Bs quarterly and Cs only once or twice a year.  This approach actually lowers the cost impact of inventory counting while improving accuracy, visibility and your ability to spot trends and problems areas more quickly.  Here again, software for cycle counting can ease the burden.  Studies show that properly implemented, cycle counting can lead to inventory accuracy levels of 97% or better.

3. Pick by Location

WMS software can often enable you to pick an order in sequence, by bin location.  This is a more streamlined and efficient method for picking and filling orders.  Most ERP systems can print a report in bin order.  Adding bar code technology (a bar code for the bin location, and one for the item) improves picking accuracy.  A bar-coded pick-ticket can relate order and customer info to items picked, and is often inherent in the WMS functionality of ERP.  The result is quicker and more accurate order fulfillment.  The real result is shipments more likely to be on time and accurate, resulting in more satisfied customers.

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