In previous articles we’ve described cycle counting, the process of counting some stock items or warehouse locations every day, as a valuable tool in ensuring the accuracy of your perpetual inventory. We’ve seen numerous cases in which organizations, after implementing a comprehensive cycle counting program, have had a much more accurate perpetual inventory than they had when they performed full physical inventories. Because accurate on-hand quantities are vital to both providing outstanding customer service and maximizing inventory turnover, it is not surprising that more and more distributors and manufacturers are implementing cycle counting programs.
But cycle counting programs can be difficult to maintain over a long period of time. Many firms become frustrated with the “coordination” problems inherent in cycle counting that are usually not found in a full physical inventory. When companies conduct a full physical inventory, they temporarily halt all normal material movement – that is, they stop filling orders, putting away stock receipts, shipping material, etc. Before this is done, a special effort is made to ship as many orders as possible and put away all stock receipts. During the actual counting process the business is virtually closed down. Counters do not have to worry about someone doing something that will affect the quantity in stock during the full physical inventory process.
Extensive preparation is necessary for a full physical inventory. It is not practical to complete this preparation before each daily cycle count. It is equally difficult to conduct cycle counts only when a business is closed and there is no material movement. After all, cycle counting should be performed every day. Even if a company counts before or after normal working hours when there is little or no material movement, paperwork involving items being counted can be “floating” somewhere in the warehouse or office. For example, a quantity of an item may have been pulled from the shelf but not yet shipped. Or a stock receipt for a product may have been put away but not yet entered into the computer system.
Because of these issues, it is necessary to reconcile cycle counts to determine if a particular count discrepancy is an actual shortage or overage, or just the result of floating paperwork. Because paperwork is often scattered in numerous places throughout the office and warehouse, it is not surprising that many firms spend more time reconciling a cycle count than they do actually counting products. Some firms have found the process so frustrating that they have abandoned their cycle counting programs.
The implementation of radio-frequency (RF) bar code equipment can almost eliminate cycle count reconciliation problems. In most RF warehouse systems, the on-hand quantity in the computer is updated as soon as material is added to, or removed from, a bin location. There is no “time lag” in updating computer records. Therefore whenever someone cycle counts a product, their count should match the computer’s on-hand quantity.
But RF systems are cost-prohibitive for many companies. Is there a way to implement a successful cycle counting program without RF equipment or devoting an inordinate amount of time to the reconciliation process? The answer is yes. Here is an outline of a set of procedures we developed to accomplish this task:
- Early each morning (or just before leaving on the previous day) the cycle counter receives the list of products to be counted that day.
- As soon as he or she receives the list, the counter goes to each warehouse location containing a product to be counted and puts a temporary label on the bin reading “Product Being Cycle Counted”. The counter also places a card in the bin to record all material movement of the product before the cycle counting process is completed. This card contains the following information in the header:
- Date
- Item
- Bin Location
Four columns on the card allow anyone removing material or placing stock in the bin to record that transaction:
- Time
- Type of Transaction (Normal Order, Handwritten Order, Confirmed Order, Stock Receipt, Sample, etc.)
- Order Number
- Quantity
- After the cards and labels have been distributed, the counter will note the time, and print the count sheet to record the quantities of the items being cycle counted. He or she will then proceed to count the items.
- Whenever an employee fills an order or puts away a stock receipt for an item being counted, he or she will note the time, type of transaction, order number, and quantity involved on the card that was previously placed in the bin.
- As an item is cycle counted, the cycle counter will look at the transactions listed on the card, comparing the time of each transaction to the time of the count:
- Quantities on customer orders, work orders, outgoing transfers, and other material disbursements removed from the bin before the count was taken will be added to the quantity actually counted. The result represents the on-hand quantity of the product when the cycle counting process began. The computer’s on-hand quantity for these orders has not yet been reduced, but the material has been removed from the shelf.
- Quantities on stock receipts placed in the bin before the count is taken will be subtracted from the count quantity. These quantities were not included in the computer’s on-hand quantity at the beginning of the cycle counting process.
- If there is a discrepancy between the quantity listed on the cycle count sheet and the on-hand quantity, the cycle counter will note the discrepancy, not the actual quantity on hand. For example, he or she might note “-2 pieces” if the sheet says there should be 42 pieces and the actual on-hand quantity is 40 pieces. Noting the difference rather than the actual quantity will allow the perpetual inventory system to be updated any time after the cycle count has been completed, even after additional transactions for the item have been processed!
- As the counter finishes the count of each item, he or she will remove the count label and count card from the bin.
- If there are discrepancies between the computer’s perpetual on-hand quantity and the quantity actually counted, the counter will proceed to the staged orders, will call, and tag and hold areas of the warehouse. All paperwork for these filled but still-open orders should be kept in one place. The counter will look through the orders looking for any quantities of items that were counted that day but not yet confirmed in the system. These quantities will be added to the quantity he or she actually counted. If this process is cumbersome and time consuming, consider developing a computer report that lists, by part number, all outstanding orders.
This simple process has the potential to dramatically cut the time necessary to perform daily cycle counting. No longer will people roam around your facility trying to determine if a particular order was picked or put away before or after a product was cycle counted. The result: More accurate inventories with less effort and frustration, a winning combination for any organization. Why not try this method? It could turn out to be a very valuable tool in your quest to achieve effective inventory management!