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?
Cant 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 Put away Transfer from one location to another Material issue Extra issue of material Backflushing Shipments Removal to QA Return from QA Completions Loans to Sales, Engineering, R&D etc.

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 Dont 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 error

Identify cause of error

Cause Report
Cycle Count Cause Report
Date ___________________ By: ____________________ No of Number % with items with Outside signficant Missing Scale Wrong counted variance Tolerence error Location docs eroor Lagtime identity Other 120 20 10 8.33% 2 1 3 1 2 1 110 12 6 5.45% 1 2 1 2 115 30 4 3.48% 1 2 1 125 21 12 9.60% 2 1 8 1 120 15 6 5.00% 1 2 1 1 1 590 98 38 6 7 12 5 6 2 17% 6% 16% 18% 32% 13% 16% 5%

Date 3-Mar 4-Mar 5-Mar 6-Mar 7-Mar Totals %

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 Todays problems Control Group

Deciding How Often to Count

ABC After specified number of transactions Whats 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

Dont Forget the Cycle!

Find error

Eliminate cause of error

Continual improvement Research error

Identify cause of error

Step 1 Controlled Test

1. 2. 3. 4. 5. Pick 100 representative parts Divide into 25/day Mon thru Thur Friday for clean up Begin with accurate count 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 youve 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 As every 2 weeks (once every 8 days)

100 A items = 100/8 = 13 items/day

200 B items = 200/16 = 13 items/day 400 C Items = 400/52 = 8 items day

Bs monthly (once every 16 days)

Cs quarterly (once every 52 days)

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 youve 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