Cycle Counting: The 5 Keys to Inventory Accuracy

September 13, 2014

inventory-300x238The main goal of cycle counting is to cycle through your inventory to ensure inventory accuracy on a consistent basis. (In contrast, a physical inventory is a point-in-time process, typically yearly, to ensure inventory accuracy). The keys are as follows:

1. People: It is important to make sure the right resources have the right responsibilities. A counter requires a detail-orientation and should take counting seriously (it is amazing how much time and energy is saved with a cycle counter that understands the value of counting right the first time), whereas a reconciler requires an analytic ability with enough of a big picture understanding to make sense of the results and research.

2. Cycle count frequency – cycle counting must be performed on a consistent enough basis to provide assurance that the inventory is continually reviewed (and can be relied upon). Best practice processes typically count weekly – at minimum, monthly.

3. Cycle count calendar – the key is to make sure that you’ve cycled through your warehouse at least once a year and have covered 100% of your warehouse. Depending on your level of accuracy and impact on customer service, a more frequent basis might be required.

4. Cut-off processes: you might as well throw out all your work if everything moves while its being counted. It is critical to identify a process that works for your business where you freeze the inventory for a period of time and/or coordinate closely on all moving parts and cut-off’s.

5. Variance analysis: there is no reason to count if the majority of the emphasis isn’t on understanding your variance root causes and developing solutions. Don’t get bogged down in resolving every dollar – focus on the significant ones, and you’ll achieve the “80/20″. This is the key to an effective cycle counting program.

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