Written By: Ric Bedard, CEO, on Jul 10, 2019
There are many benefits to implementing a cycle count inventory process.
Unlike a traditional physical inventory that compels teams to pause operations, cycle counts are slightly more flexible. They can occur behind the scenes and can be tailored to emphasize the criteria that matter most to the organization: higher-value parts, parts with a higher movement volume, or parts that are considered critical to business processes. Since they take place over an extended period of time, cycle counts provide an ongoing measure of inventory accuracy.
Obtaining that elusive 99.5% inventory accuracy requires an ironclad strategy and an actionable plan to continuously measure and improve inventory processes.
Whether you're looking at implementing cycle counts for the first time or aiming to optimize existing cycle counts, this guide is designed to support your team as you define the process that's right for your organization.
Inventory management is most successful when a clear strategy is defined, documented, and the team responsible is adequately trained to execute on it. To start, gather key stakeholders to clarify business goals and count objectives, research and determine methods, and define the count strategy.
A. CLARIFY BUSINESS GOALS AND COUNT OBJECTIVES
The most important step is to gather management and stakeholders to examine your current state and clarify your overarching business goals. From this point, every procedure and objective should complement these larger goals. Start by articulating the major pain-points or issues you are trying to solve. Then, identify any known bottle necks or root causes. Discuss how you can directly confronted these issues in your objectives.
B. RESEARCH AND DETERMINE METHODS
Evaluate count types, method, and frequency: Research and define which counts will take place throughout the year. Will you continue to complete full inventory counts, and how will these interact with cycle counts? Will you employ ABC analysis? Which methods will work for your process: pareto method, cycle count by usage, hybrid, or objective counting by surface area?
Consult with the industry: Reach out to your network, attend conferences, or contact your software providers who may be able to help you connect with other similarly sized teams. Gauge what others are doing and see if you can benchmark your process against a like organization.
C. DEFINE YOUR CYCLE COUNT STRATEGY
There is no one size fits all approach to defining the right strategy.
We often find the most accurate parts rooms we work with employ some combination of cycle counts and full inventory counts. The cycle counts can identify inventory control issues, while less frequent full physical audits can correct all balances. Continue to use cycle counting to monitor and sustain the inventory control process. Keep in mind that as you identify new control issues, you may need to pivot to grow with these findings.
Many shops perform cycle counts every 30 days for a full inventory. To do this, perform a cycle count each week on 25% of the inventory. These weekly counts will allow you to achieve a complete count over the course of 4 weeks. You can apply this strategy to quarterly counts or bi-annual counts as well.
Cover a bin range for each segment of inventory. Allocate a timeline that makes sense for your operations, keeping in mind that cycle counts should be performed as frequently and consistently as possible to maintain the accuracy of your inventory. Each segment is counted within at least one month, or, in the case of quarterly counts, every 3 months. Consult the following sample count strategy for a point of reference:
Sample Count Strategy:
D. IDENTIFY ROLES AND RESPONSIBILITIES
Determine each role in the process and outline their responsibilities.
There's one key habit we see repeated across part teams with the highest rate of inventory accuracy. By defining policies and best practices that align with your count strategy, you provide a clear pathway to attaining your count objectives.
A. BEST PRACTICES FOR ORGANIZING THE PARTS ROOM
When we initially consulted with parts teams, they identified that one of the most significant challenges affecting their ability to maintain inventory accuracy was the organization of parts. The right process can help to drive improvements to workflow and productivity. Consult these best practices and define the procedures that address the challenges in your parts room.
✔️Bins and parts are labeled.
✔️Parts are organized within bins.
✔️Any unused or recently received parts are sorted, labeled, and put away in their rightful place.
✔️A separate bin for fast-moving parts. Make it in a convenient location in the parts room, and require more frequent cycle counts for these parts.
✔️Consider setting up the parts room in VMRS order. This can accomplish a couple of things:
B. BEST PRACTICES FOR COMPLETING CYCLE COUNTS
Defining a plan based on your organization's structure can create efficiencies that are baked-in. Review these best practices and establish the procedures that make sense for your team.
✔️Cycle counts are scheduled and repeated to encourage efficient processes and inspire increased control measures.
✔️Cycle counts encompass the entire inventory at least twice annually.
✔️Cycle counts are performed at all inventory sites regardless of the size.
✔️Cycle counts consist of random BIN locations.
✔️Cycle counts do not consist of any BINs that have been counted until all other bin counts are complete.
✔️Each count is double-checked by a different employee than the individual who initially completed the count.
✔️Any open part transactions that will affect inventory counts are relieved, charged out, and processed such as:
C. DETERMINE BEST PRACTICES FOR HANDLING COUNT VARIANCE
Part teams with a well-established process for handling variance usually are more responsive to inventory change and more capable of preventing inventory control loss. Review these best practices for handling variance, and define your own best practices for handling variance.
✔️Any variance in inventory whether positive or negative is a demonstration of inventory control loss, so treat both with the same resolve.
✔️If a variance occurs, always trigger a recount to be completed by a second employee.
✔️Determine when you should recount for variances between the count sheet and quantity on hand based on percentage, quantity, and part value: