Cycle Counting – the Secret to

Inventory Accuracy

Bob Collins, CFPIM, CIRM

SSI North America
Chicago, IL
APICS International President
 Agenda
• Inventory Accuracy
• Periodic Physical Inventory
• Cycle Counting
• Cycle Counting in Oracle
• How to get started!
 Sound familiar?

• Can’t find parts your system says

you have?
• Expediting too many items?
• Wasting time looking for parts?
• Holding excess inventory “just in
case?”
 Types of Transactions
– Receiving – Shipments
– Put away – Removal to QA
– Transfer from one – Return from QA
location to another – Completions
– Material issue – “Loans” to Sales,
– Extra issue of Engineering, R&D
material etc.
– Backflushing
 True Cost of “missing” parts

• Sam loses $100 of inventory/month

• Lost material must be replaced with
profit dollars
• Distributor w/ 6% profit
• $100 / .06 = $1666.67
• Must sell extra $1667/month to
replace $100 of lost inventory!
 Other costs
• Wasted time looking for parts
• Delayed customer orders
• Wasted time in production
• Excessive expediting costs
• Excessive inventory carrying costs
• $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$!
 Two methods of “keeping
inventory accurate”
• Periodic physical inventory count
• Cycle count program
 Periodic Physical
Inventory Count
• Periodic physical count of inventory
– Annually
– Quarterly
– Monthly
• Expensive
• Shut down production/shipping –
sometimes for days
• Unidentified or misidentified material
 Periodic Physical
Inventory Count
• Inexperienced, reluctant counters
• Temptation to cut corners
• Missing documents
• Count, recount, audit counts
• Cannot track down causes of errors
• Often introduces more errors than it
fixes
 Accounting vs Manufacturing

• Physical inventory counts often get

close to actual dollar value of
inventory (what accountants are
looking for)
• Individual item accuracy abysmal
(What manufacturing is looking for)
– Too many item A, Not enough item B,
Dollars even out, but accuracy suffers
 (If you must) Tips to Improve
Physical Inventory Counts
• Set date early – time for prep
• Determine counting method
– Bar code
– Count cards
– Count Sheets
• Determine who will count – train!
• Map of facility
 (If you must) Tips to Improve
Physical Inventory Counts
• Clean up first
• Reduce inventory as low as you can
– Ship what you can
– Delay incoming materials
• No receiving or shipping during
count
• Keep supplies on hand (Dots!)
 (If you must) Tips to Improve
Physical Inventory Counts
• Pre-count (and audit) surplus
supplies and slow moving items
• Audit while your people are still
counting
• Don’t move misplaced material
during count (note and move later)
• Oracle Physical Inventory can help!
 Cycle Counting
– APICS Dictionary
• Inventory counted on cyclical
schedule
• Count on regular, defined basis
• Most effective - counting a certain
number of items daily w/prescribed
frequency for each item
 Cycle Counting Cycle
Find error
Eliminate
cause of error

Continual
improvement

Research Identify cause

error of error
 Cause Report
Cycle Count Cause Report
Date ___________________

By: ____________________

No of Number % with
items with Outside signficant Missing Scale Wrong
Date counted variance Tolerence error Location docs eroor Lagtime identity Other
3-Mar 120 20 10 8.33% 2 1 3 1 2 1
4-Mar 110 12 6 5.45% 1 2 1 2
5-Mar 115 30 4 3.48% 1 2 1
6-Mar 125 21 12 9.60% 2 1 8 1
7-Mar 120 15 6 5.00% 1 2 1 1 1
Totals 590 98 38 6 7 12 5 6 2
% 17% 6% 16% 18% 32% 13% 16% 5%
 Common Causes for Errors
• counting procedure/equipment
• untrained personnel
• carelessness
• poor forms design
• poor document control
• inventory adjustments
• lack of transaction discipline
• midnight requisitions
 Deciding What to Count
• ABC analysis
• Location counting
• Negative on-hand items
• When order placed
• When order received
• Today’s problems
• Control Group
 Deciding How Often to Count

• ABC
• After specified number of
transactions
• What’s possible with staffing level
Oracle Cycle Counting Set Up

1. Define ABC classes

2. If using ABC, compile an ABC
analysis and assign your compiled
items' ABC classes
 Oracle Cycle Counting Set Up

3. Define a cycle count for the

organization or subinventory level
– Enter control and scope information
– Enter autoschedule information
– Define adjustments and ABC information
– Enter ABC classes to include in your
cycle count
– Define cycle count items
Oracle Cycle Counting Set Up
4. Define cycle count classes
5. Define cycle count items
6. Automatically schedule item counts
using ABC count frequencies
7. Manually schedule counts for the
following inventory control details
– items, or specific revisions, lots
– subinventories or specific locators
Oracle Cycle Counting Process
1. Generate daily, weekly, or period
count requests and lists based on
your schedule Enter counts
2. Count items generated
3. Approve, reject, or request
recounts for cycle count
adjustments based on approval
tolerances
 Don’t Forget the Cycle!
Find error
Eliminate
cause of error

Continual
improvement

Research
error
Identify cause
of error
 Step 1 – Controlled Test
1. Pick 100 representative parts
2. Divide into 25/day – Mon thru Thur
3. Friday for clean up
4. Begin with accurate count
5. Note and investigate variances
each day
6. Keep track of daily accuracy
percentage (spreadsheet)
 Step 1 – Controlled Test
6. Cycle Counter uses checklist to
investigate possible root causes
7. Oracle Transaction Summaries
report will show transactions in
system (go back one week)
8. After finding root cause, correct
inventory record (spreadsheet)
 Step 1 – Controlled Test
9. Record of cause, who will fix and
when
10. Keep checking until you’ve
attained 100% accuracy for two or
three weeks (Predictable results)
11. If time available, also check
negative on-hand items
 Results of Step 1
• You have begun to establish the
discipline necessary to maintain an
accurate inventory
• You have identified and corrected
most of the errors that are causing
inaccurate inventories
 Step 2 – An Expanded Test
1. Expand to a larger number of items
(600 to 700?)
2. Use ABC categories
– A – count bimonthly
– B – count monthly
– C – count quarterly
3. Keep inventory accuracy and cause
records (spreadsheets)
 Step 2 – An Expanded Test
4. Example formula for counts
– Counting 4 days/week
– A’s – every 2 weeks (once every 8 days)
• 100 A items = 100/8 = 13 items/day
– B’s – monthly (once every 16 days)
• 200 B items = 200/16 = 13 items/day
– C’s – quarterly (once every 52 days)
• 400 C Items = 400/52 = 8 items day
 Step 2 – An Expanded Test
All 600 items can be divided into 34
items/day
In a quarter, all A items will have been
counted 6 times, B items 3 times, C
items once.
5. Continue until you’ve attained 100%
accuracy for two or three weeks
(Predictable results)
 Step 3 – Full Cycle Counts
• Once the root causes are identified
and are being dealt with for the
items in the Expanded Test, and the
Cycle Counting procedures have
been reviewed and are in place, the
Cycle Counting program should be
expanded to include all of the
inventory items.
 97% + Accuracy
• You can achieve 97%+ accuracy
• If accuracy level maintained long
enough – you may be able to
eliminate periodic physical inventory
counts
 Questions?

Bob Collins, CFPIM, CIRM

SSI North America
APICS
bob.collins@us.ssiworldwide.com