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Posts Tagged ‘cycle counts’

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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In Part I we looked at the key labor cost-savings to be gained from a well-implemented warehouse management system.  Next up, inventory.

Improved inventory accuracy is probably the leading reason companies decide to take the plunge into WMS.  (The labor costs are a separate benefit that are usually realized a bit later.)  The improvements come largely in the areas of reduced mistakes, fewer back-orders, improved fill rates, and better customer service.  These in turn will almost always lead to nominal improvements in inventory turns. 

One big hidden surprise (of the positive variety) is that with improved inventory accuracy comes fewer year-end inventory discrepancy surprises, which often results in a lower tax bill on income at year-end.  Big inventory swings (in either direction) are never welcome, but especially not when they suddenly skew the owner’s tax expectations in the wrong direction!

As you improve your inventory reliability with a WMS, you can gradually start to safely reduce your safety stock.  This in turn leads to the improved inventory turns noted earlier, and thus an overall lowering of inventory carrying costs.  Studies show that the typical improvements here are in the range of 10-12%.

And then of course, reduced inventory levels essentially ‘grow’ your warehouse automatically.  You have more places to put stuff, and thus your overall storage capacity can grow without expanding the footprint of the warehouse.

Generally, inventory valuation and accuracy are measured via a year-end physical inventory.  Nowadays, generally accepted accounting principles (GAAP) recognize inventories registered by WMS systems with RF barcode scanning technologies.  This is largely because periodic, real-time cycle counts are easily and accurately performed.

Our experience has been that companies that previously did monthly physical inventories now do only annual counts, with periodic (and quick) cycle counts, or ABC counts, in between.  And those year-end physicals are always closer to the accounting figures now than they ever were before.

Up and down the line, inventory costs are improved, continuously, under the auspices of a well managed RF-based WMS.

Next up, we’ll look at some of the implications of WMS on your warehouse facilities.

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