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Posts Tagged ‘improving inventory accuracy’

Randall Schaefer is an APICS CPIM (retired) consultant who recently published an article entitled “Cycle Counting Is Not a Guessing Game” for APICS Magazine.  In it, he describes a few scenarios that lead to common errors in cycle counts, such as only counting negative on-hand balances, counting after a production run when quantities are likely to be low, or counting only when the MRP system says to order more inventory.

Schaefer then reminds readers of “the right way to count” which we’ve reprised from his article below.

Since cycle counting is critical to effective inventory management, and hence to reliable MRP (material requirements planning), we thought it would be useful to remind readers of those key principles.  As he notes, commitment to the principles ensures accurate counts of inventory.

  • First, items must be counted at a predetermined frequency
  • Second, cycle counts should be performed more frequently for high-value or fast-moving items than low-value or slow-moving items.
  • Third, the primary purpose of cycle counting is to identify items in error in order to trigger research, identification and elimination of the causes.
  • Fourth, there are two types of cycle counts:

The first is a parts-based system, which counts every location on record to get a total. This is then compared to the stated inventory.  If a part ends up in a location not on record, it is effectively lost forever.

The second type of cycle count is location-based.  Here, every storage location is visited when its turn comes up.  The parts found are counted and compared with the inventory records.  This method eventually finds parts lost to the parts-based system.  As Schaefer points out, “the experienced supply chain management professional understands that world-class cycle counting requires both.

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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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