Tag Archive: cycle counting

Inventory Accuracy Pitfalls

August 15th, 2016
inventory inaccuracy

The most common inventory accuracy pitfalls stem from minor problems but will snowball into bigger headaches if the root causes aren’t caught and resolved.

Why do so many companies run into issues with inventory accuracy?  After working on hundreds of projects with companies spanning many industries such as aerospace, building products and food, I’ve found these pitfalls are the most common:

  • Transaction timing issues – although they might perform system transactions, they are not completed on a timely basis. Thus, the system gets all mixed up – with the best case scenario.
  • Transaction quantity issues – who hasn’t had fat fingers and keyed in 10000 instead of 1000? I’d be hard pressed to think of a client who hasn’t experienced that issue. In addition, there are transpositions of numbers, incorrect counts, etc.
  • Transaction sequence – even if everything is perfect with the quantity and timing, there are countless problems with transactions being completed in the incorrect sequence. Unfortunately, systems are rarely forgiving with this issue. Typically, they would need to be backed out and start over.
  • Transaction training – often, there isn’t a full understanding of how to perform the transactions. How to undo problem transactions is especially important but rarely understood.
  • Count and adjust mentality – there are many companies that “count and adjust” to keep their inventory accurate. They miss the critical step of reconciliation and root cause analysis. Actually counting and adjusting can lead to even larger inventory issues because root causes are never getting addressed and the inventory gets worse and worse over time.
  • Other inventory adjustments – other inventory adjustments often get in the way. For example, if we change one part number into a different part number and there isn’t a production entry for the transition, it is often done through an inventory adjustment. That can be fine; however, these inventory adjustments, timing and process needs to be understood and incorporated into the cycle counting process.
  • Virtual warehouses – these can create havoc with inventory accuracy. They are often used for quality hold, to “save” product for customers etc.  Keeping track of transactions related to these is important and will have a profound impact on the rest of your inventory accuracy.

 

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Why Care about Systems Transactions?

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Cycle Counting Remains Core to Success

January 13th, 2015
cycle counting

Inventory management relies on fundamentals like cycle counting to catch discrepancies. But it has to be coupled with a focus on process disciplines or you’ll end up reliving the same problems every day.

I’ve started working with one of my clients on a cycle count program, and so I’m reminded of the critical importance of this supply chain fundamental. If you cannot find the right inventory in the right place at the right time, your customer will be negatively affected. This should be a sufficient reason to pay attention if you’d like to grow – or even maintain your customer base; however, it will also impact your profitability and cash flow if you need additional incentive.

Cycle counting is a measurement process; however, cycle counting alone will do NOTHING to fix your inventory accuracy issues. Count and adjust; count and adjust. If there is no root cause analysis, it becomes a vicious cycle with zero accomplished. Instead, you must focus on process disciplines. Does your company value process disciplines? Do NOT think about what is said. Instead, answer this question: If the employee responsible for work order transactions is near the end of the day and a machine breaks down, will you divert him/her from transactions (even if there is no backup) to help fix the machine? How about if you are being questioned by Finance about overtime and your resource already has worked “too much” overtime? Will you send him/her home and tell them to complete another task and finish the transactions tomorrow? What message does that send?

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Cycle Counting 

Tips for Physical Inventory Success

 



Cycle Counting: The 5 Keys to Inventory Accuracy

July 31st, 2014
cycle counting inventory management

The key to effective cycle counting is to not get bogged down in resolving every dollar, but rather focus on the significant discrepancies.

The 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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Bedrock Topic:  Inventory Accuracy