Cycle Counting

Many operations management practitioners are familiar with the concept of cycle counting. It is an important procedure in the OM practitioner's tool box to help improve inventory record accuracy.

To avoid any ambiguity, the APICS Dictionary defines Cycle Counting as follows:
"An inventory accuracy audit technique where inventory is counted on a cyclic schedule rather than once per year. A cycle inventory count is usually taken on a regular, defined basis (often more frequently for high-value or fast=moving items, and less frquently for low-value or slow-moving items). Most effective cycle counting systems require the counting of a certian number of items every workday with each item counted on a prescribed frequency. The key purpose of cycle counting is to identify items in error, thus triggering research, identification, and elimination of the cause of error."

It is the last sentence where many firms fail to properly execute the spirit of cycle counting. More on this later.

The importance of inventory record accuracy ought to be self-evident. Without accurate inventory records, customer service and sales lose visibility of what is available for sale. Inventory Managers will order either insufficient stock, or will unknowingly order surplus. Confidence interally and exterally becomes shaken. Customers become disappointed. Finance gets angry. Warehouse personnel get frustrated. The list goes on. 

A mentor of mine years ago, for whom I have great respect, used to express her fear that the more one counted an item, the worse inventory record accuracy became. There is more than a grain of truth to that assertion. 

Cycle counting must respect similar cut-off rules as are observed in an annual physical inventory that has been well done. Pending inbound shipments need to be identified and accounted for in the counts, Pending outgoing customer orders need to be identified and accounted for in the count. Stock needs to be located properly in the warehouse. And samples need to have been listed and included in any counts, if they are saleable inventory. Broken and otherwise unusable inventory needs to be written off and excluded from the count.

Adjustment of the inventory record to the physical count needs to be done. But too many firms stop there. It is critical, as per the last sentence in the definition above, that the cycle count team investigate and identify the root cause of the error, and ensure that it does not happen again,. This might mean adjusting internal business processes or make demands of external partners that would require the assistance of Senior Management. But until the root cause is addressed, the problem will continue to pose problems. 

What other issues might cause a cycle count program to fail? A few land mines to avoid:

- inexperienced staff, who are not familiar with the product(s) have difficulty counting properly
- failure to devote sufficient resource to the program
- kicking off the program during a period of peak activity (sales, outbound or inbound shipments).
- poor stock locator systems
- a messy warehouse
- failure to promptly write off and dispose of unsaleable inventory- staff who have been insulated from business processes outside of the warehouse's four walls. Staff need to appreciate the impact of poor inventory record accuracy and need to have some basic understanding of business processes outside of the warehouse.
- lack of support and follow-up by senior management.

It can be done!

Cheers