Your best teacher is your last mistake. - Ralph Nader

The power of the cycle count runs deep and strong!  It's indeed a worthy champion to slay your inventory inaccuracy demons.

What is it?

To put it simply, it's an inventory auditing procedure. Cycle counts contrast with traditional physical inventory. A full physical inventory may stop operations at a facility while all items are counted at one time. Cycle counts are less disruptive to daily operations, provide an ongoing measure of inventory accuracy and procedure execution, and can be tailored to focus on items with higher value, higher movement volume, or that are critical to business processes. - https://en.wikipedia.org/wiki/Cycle_count

What's The Purpose?

The purpose of cycle counting is to verify the inventory accuracy and, even though it's not an adequate procedure to be used to correct inventory errors, it's an adequate way to identify the root causes of inventory errors.

Difference between Physical Count and Cycle Count

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 Physical Counting or Physical Inventory can improve the effectiveness of the process. Some of the best practices in Physical counting are:

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 omitted altogether.

10. Systems staff should be available for support, if system issues are encountered during Physical Counting activities.

How to Perform A Cycle Count

In materials management, the ABC analysis (or Selective Inventory Control) is an inventory categorization technique. ABC analysis divides an inventory into three categories: "A items" with very tight control and accurate records, "B items" with less tightly controlled and good records, and "C items" with the simplest controls possible and minimal records.

The ABC analysis provides a mechanism for identifying items that will have a significant impact on overall inventory cost,^[1] while also providing a mechanism for identifying different categories of stock that will require different management and controls.

The ABC analysis suggests that inventories of an organization are not of equal value. ^[2] Thus, the inventory is grouped into three categories (A, B, and C) in order of their estimated importance.

'A' items are very important for an organization. Because of the high value of these 'A' items, frequent value analysis is required. In addition to that, an organization needs to choose an appropriate order pattern (e.g. ‘Just- in- time’) to avoid excess capacity. 'B' items are important, but of course less important than 'A' items and more important than 'C' items. Therefore, 'B' items are intergroup items. 'C' items are marginally important.  - https://en.wikipedia.org/wiki/ABC_analysis

Here is the RBW way.

PROCEDURE DESCRIPTION:

1. Operations Manager notifies associates of the date of the inventory, the items to be inventoried, and the procedures that will be used.

2. All transactions must be completed prior inventory.

3. A pre-inventory list will be prepared for the record.

4. An inventory team meeting will be held in order to assign roles and responsibilities.

5. Teams will work in pairs of two and will record the count in each physical location.

6. Follow the below listed WMS process for completing the RF physical inventory.

a. Log onto the WMS using the correct company and facility.

b. In the WMS select the physical option from the main menu.

c. Select the count option you will perform (i.e. count A or count B)

d. Enter the customer number

e. Enter the physical inventory batch number

f. Scan the pallet ID to be counted

g. Scan the location

h. Enter or scan the quantity

i. Hit ENTER to confirm the count

7. Once all teams have completed all counts, the inventory designee will run a variance report. If variances occur, a recount will be performed of the SKU in question and record the result in the system using count C.

8. In the WMS, edit the physical inventory and on the header right click and print the variance report.

9. If the counts are accurate post physical and the system will make the necessary adjustments. Any correction issued will be tracked via the WMS and submitted to the customer.

10. A log of all discrepancies reported will be reviewed to understand the reasons of adjustments by the Operations Manager.

11. A final inventory report will be submitted to the customer for their records.

Best Practices

Some of the best practices in 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 thumb rules 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.