How to Cycle Count Your Inventory

If your supply chain is optimized, you are getting your customers what they want when they want it and accomplishing that by spending as little money as possible. Many interconnected and overlapping things have to go right in order to make that happen—from forecasting to order placement to warehousing to supplier deliveries to production planning and execution.

But the one primary thing that can impact your ability to get your customers what they want, when they want it, and spend as little money as possible accomplishing that—is inventory accuracy.

Without Inventory Accuracy

If your MRP or WMS is telling you that you have a product on hand, but you don’t have it, you might promise a customer you can ship when you can’t.

If your MRP or WMS is telling you that you don’t have a product on hand, but you do have it, you might end up ordering more, and spend more money than you need to.

If your MRP or WMS is telling you that you have a product in pallet location A1, but it’s really in pallet location Z999, you might end up shipping to your customer late because you knew you had it, but you couldn’t find it. (Or you’ll procure more of the product, thereby spending more money than you need to.)

Accuracy Matters

If you’re not conducting at least one 100 percent physical inventory every year, you should be. And if you can’t shut down to count everything all at once, you need to implement a robust cycle count program.

Cycle count programs are a great way to ensure you maintain inventory accuracy throughout the year, and many companies employee a combination of cycle counting and 100 percent physical inventories. For instance, they may cycle count their key products (or “A” products) throughout the year and count all products during their 100% physical inventory.

What Do It?

The scope of your cycle count program depends upon 3 inputs:

1. How many SKUs do you want to cycle count?
2. What are the resources at your disposal to do the cycle counting? (i.e. Who’s going to count and how much time do they have?)
3. How regularly are you going to cycle count?

The question of how many SKU’s you want to count is a function of your total number of SKUs and your high dollar/critical SKUs (or your “A” items). Cycle count programs sometimes target counting all SKUs over a given period (i.e. a fiscal year). But more often, cycle count programs target counting the “A” items over that period.

“A” items typically follow the 80/20 rule, as in they are the top 20 percent of your SKUs that represent 80% of your inventory value. However, you might have A items that are not high dollar items but that are critical to your operation. A low dollar, proprietary component that may not cost a lot but is a show stopper if you don’t have it on hand, for instance. Also, it’s important to note that an SKU that’s individually low cost, but that is held in high volume would be an “A” item. For example, a five cent item that you have a ten million of. That inventory value is the same as a thousand dollar item that you have that you have 500 of. Both should be cycle counted (assuming $500,000 in inventory value is in your top 80 percent).

Who Does My Cycle Counting?

The person or persons who do your cycle counting shouldn’t have a stake in inventory accuracy. They should be employees who are counting for the sake of inventory accuracy, not verifying that the numbers that they entered are accurate.

Frequency

Start with answering this question: How many SKUs am I going to cycle count this year? For the sake of the math, let’s assume you want to count 1200 SKUs in a given year. That’s 100 each month. That’s 25 each week. That’s 5 a day. How long will it take your cycle counter(s) to count 5 SKUs in a day?

Remember, high volume items can be counted using weight and not by touching each item. 

And be sure to count by combining floor-to-sheet and sheet-to-floor counting, just to keep everyone on their toes.