Throughout the years, I have seen countless companies doing what they call “cycle counting,” which, in reality, is no such thing. These situations often result from managers who are unwilling to invest in a true cycle counting program. They seem to understand the cost of cycle counting but fail to appreciate the value of accurate inventory records. The subsequent poseur systems these managers create are so concerned with limiting costs that, when errors are ultimately uncovered, no money is allocated to address the root causes.
Here are some typical scenarios:
- Only negative on-hand balances are counted because those are obviously wrong. But the fact is, negative balances exist in back-flush environments. Therefore, every item on the bill of material below the negative item must be counted because of the cascading effects of the error. Of course, this seldom happens.
- Components are counted after a production run when quantities are low. This generally means that high-value components are not counted more often than low-value components.
- Employees count when the inventory record reads zero because people think this is easier. What’s so special about zero? It’s just a number—as likely to be wrong as any other.
- Employees count when the material requirements planning system says to order more inventory. But unless the same products and quantities are manufactured every day, this does not take into consideration components made at predetermined frequencies.
Often, decision-makers jump into a cycle counting program too soon. Beginning a cycle counting program before enforcing transaction disciplines will only confirm that the known causes of errors are still causing errors. And new inventory mistakes are inevitable in such situations, as supervisors fail to write scrap tickets, substitutions go undocumented, quantities are estimated instead of being based on actual numbers, and so on.
Sometimes, inappropriate components are included in a cycle counting program. Certain parts are treated in a manner that makes it impossible to keep inventory records accurate. For instance, when inexpensive, small parts are dropped on the floor, they are more likely to be swept up than picked up. All employees have to do is simply divorce these parts from the cycle counting system, attach a healthy safety stock, and count once or twice a year so the accumulated losses do not eventually cause a shortage. Then, do the same with any parts that are used inconsistently from the quantities on the parent bill of material (BOM). For example, the BOM may specify a precise amount of paint, thinner, or glue, but ambient temperature and humidity determine how much is really used.
So, what is the right way to count? For starters, commit to the four key principles involved. First, items must be counted at a predetermined frequency. Second, cycle counts should be performed more frequently for high-value or fast-moving items than low-value or slow-moving items. Third, the primary purpose of cycle counting is to identify items in error in order to trigger research, identification, and elimination of the causes.
Lastly, there are two types of cycle counts. The first is a parts-based system, which counts every location on record to get a total. This is then compared with the stated inventory. If a part ends up in a location not on record, it is effectively lost forever. The second type of cycle count is location based. Here, every storage location is visited when its turn comes up. The parts found are counted and compared with the inventory records. This method eventually finds parts lost to the parts-based system. The experienced supply chain management professional understands that world-class cycle counting requires both.
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Randall Schaefer, CPIM, is an industrial philosopher and retired consultant. He may be contacted at email@example.com.
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