Getting to know your inventory

How often do you count your inventory?

A correct and timely insight into your inventory is important. However, the most important thing for your customers is having the right information and for you to fulfil your promises about delivery and products.  Differences between your stock records and your actual stock numbers must have a defined tolerance that support your company service level.

Instead of struggling with inaccurate inventory data and lengthy annual physical inventory processes, your business should consider adopting a cycle counting program. A properly implemented cycle counting program can raise the performance and efficiency levels of a wholesale business.

Cycle counting won’t guarantee immediate financial improvements, but with the appropriate tools, processes, and procedures, cycle counting will enable inventory control to swiftly identify and resolve the root causes of inventory discrepancies.

Create a cycle counting program

The benefits from a well-executed cycle counting program include lower operating costs and inventory levels, and improved service levels and shipping accuracy. Cycle counting is superior to annual or bi-annual physical inventories for a number of reasons:

  1. Track and report compliance and performance against a set of KPI and hold individuals accountable for achieving and maintaining targeted inventory accuracy levels
  2. Allow for reductions in safety stock levels as a result of improved accuracy and improved service levels
  3. Inventory accuracy is being maintained at higher levels continuously throughout the entire year
  4. Inventory discrepancy identification – root cause identification and elimination
  5. Eliminating the root causes of inventory discrepancies
  6. A comprehensive cycle counting program will eliminate the requirement to shut the entire business down one or more times a year

Many cycle counting methods are available, but the most popular is the ABC method, which can be based on value, numbers of picks, lead-time or number of inventory turns as A items, B items, or C items. The A items are considered most critical and are counted frequently throughout the year, maybe 4-6 times and with a tolerance of 0,5% accuracy. Typically these are inventory items with high turn over or have high value. The C items typically have less movement or carry a lower value and therefore may be included in the count only once or twice during the year with a tolerance of 5% accuracy. The frequency of inventory counts is important. The counting process ideally occurs on a daily basis or weekly at a minimum. Many ERP systems that include a cycle counting module have a feature that provides for automated scheduling and selection of sample items to be counted in the daily cycle counts.

A reason code should be used when counting is performed to evaluate the cause of differences over time. This code can be helpful if certain trends begin to reveal themselves after a few months of cycle counts.

  1. Educate the entire organisation (top to bottom) of the importance of having accurate inventory numbers
  2. Provide team with the right tools so they are capable of tracking and reporting to achieve success

Overall benefits of cycle counting

  • More accurate and reliable inventory quantities
  • Reduced losses due to inventory shrinkage
  • Better service levels towards customer
  • More reliable financial reporting and key performance indicators (KPIs)
  • Better decision making about reorder points, out-of-stock inventory and excess inventory
  • Reduce the cost of an annual physical inventory count
  • Meet the requirements of the accounting department and external auditors for procedural controls
  • Uncover the root causes of inventory discrepancies

Should your business implement cycle counting ?

Implementing a cycle counting program can be a timely process and requires changes in organisational resources. Therefore, it is important to focus on creating a long term plan with a clear and achievable goal that can be reached within each phase. New processes take time to implement and require adjustments along the way. Remember, a cycle counting program is an investment in the organisation’s business processes.