Cycle Counting the Secret to Inventory AccuracyBob Collins, CFPIM, CIRMSSI North AmericaChicago, ILAPICS International President

AgendaInventory AccuracyPeriodic Physical InventoryCycle CountingCycle Counting in OracleHow 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 TransactionsReceivingPut awayTransfer from one location to anotherMaterial issueExtra issue of materialBackflushingShipmentsRemoval to QAReturn from QACompletionsLoans to Sales, Engineering, R&D etc.

True Cost of missing partsSam loses $100 of inventory/monthLost material must be replaced with profit dollarsDistributor w/ 6% profit$100 / .06 = $1666.67Must sell extra $1667/month to replace $100 of lost inventory!

Other costsWasted time looking for partsDelayed customer ordersWasted time in productionExcessive expediting costsExcessive inventory carrying costs$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$!

Two methods of keeping inventory accuratePeriodic physical inventory countCycle count program

Periodic PhysicalInventory CountPeriodic physical count of inventoryAnnuallyQuarterlyMonthlyExpensiveShut down production/shipping sometimes for daysUnidentified or misidentified material

Periodic PhysicalInventory CountInexperienced, reluctant countersTemptation to cut cornersMissing documentsCount, recount, audit countsCannot track down causes of errorsOften introduces more errors than it fixes

Accounting vs ManufacturingPhysical 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 CountsSet date early time for prepDetermine counting methodBar codeCount cardsCount SheetsDetermine who will count train!Map of facility

(If you must) Tips to Improve Physical Inventory CountsClean up firstReduce inventory as low as you canShip what you canDelay incoming materialsNo receiving or shipping during countKeep supplies on hand (Dots!)

(If you must) Tips to Improve Physical Inventory CountsPre-count (and audit) surplus supplies and slow moving itemsAudit while your people are still countingDont move misplaced material during count (note and move later)Oracle Physical Inventory can help!

Cycle Counting APICS DictionaryInventory counted on cyclical scheduleCount on regular, defined basisMost effective - counting a certain number of items daily w/prescribed frequency for each item

Cycle Counting CycleContinual improvementFind errorResearch errorIdentify cause of errorEliminate cause of error

Cause Report

Sheet1

Cycle Count Cause Report

Date ___________________

By: ____________________

DateNo of items countedNumber with varianceOutside Tolerence% with signficant errorLocationMissing docsScale eroorLagtimeWrong identityOther

3-Mar12020108.33%213121

4-Mar1101265.45%1212

5-Mar1153043.48%121

6-Mar12521129.60%2181

7-Mar1201565.00%12111

Totals59098386712562

%17%6%16%18%32%13%16%5%

Common Causes for Errorscounting procedure/equipmentuntrained personnelcarelessnesspoor forms designpoor document controlinventory adjustmentslack of transaction disciplinemidnight requisitions

Deciding What to CountABC analysisLocation countingNegative on-hand itemsWhen order placedWhen order receivedTodays problemsControl Group

Deciding How Often to CountABCAfter specified number of transactionsWhats possible with staffing level

Oracle Cycle Counting Set UpDefine ABC classesIf using ABC, compile an ABC analysis and assign your compiled items' ABC classes

Oracle Cycle Counting Set UpDefine a cycle count for the organization or subinventory levelEnter control and scope informationEnter autoschedule information Define adjustments and ABC information Enter ABC classes to include in your cycle count Define cycle count items

Oracle Cycle Counting Set UpDefine cycle count classes Define cycle count items Automatically schedule item counts using ABC count frequencies Manually schedule counts for the following inventory control details items, or specific revisions, lots subinventories or specific locators

Oracle Cycle Counting ProcessGenerate daily, weekly, or period count requests and lists based on your schedule Enter countsCount items generatedApprove, reject, or request recounts for cycle count adjustments based on approval tolerances

Dont Forget the Cycle!Continual improvementFind errorResearch errorIdentify cause of errorEliminate cause of error

Step 1 Controlled TestPick 100 representative partsDivide into 25/day Mon thru ThurFriday for clean upBegin with accurate countNote and investigate variances each dayKeep track of daily accuracy percentage (spreadsheet)

Step 1 Controlled TestCycle Counter uses checklist to investigate possible root causesOracle Transaction Summaries report will show transactions in system (go back one week)After finding root cause, correct inventory record (spreadsheet)

Step 1 Controlled TestRecord of cause, who will fix and when Keep checking until youve attained 100% accuracy for two or three weeks (Predictable results) If time available, also check negative on-hand items

Results of Step 1You have begun to establish the discipline necessary to maintain an accurate inventoryYou have identified and corrected most of the errors that are causing inaccurate inventories

Step 2 An Expanded TestExpand to a larger number of items (600 to 700?)Use ABC categoriesA count bimonthlyB count monthlyC count quarterlyKeep inventory accuracy and cause records (spreadsheets)

Step 2 An Expanded TestExample formula for countsCounting 4 days/weekAs every 2 weeks (once every 8 days)100 A items = 100/8 = 13 items/dayBs monthly (once every 16 days)200 B items = 200/16 = 13 items/dayCs quarterly (once every 52 days)400 C Items = 400/52 = 8 items day

Step 2 An Expanded TestAll 600 items can be divided into 34 items/dayIn a quarter, all A items will have been counted 6 times, B items 3 times, C items once.Continue until youve attained 100% accuracy for two or three weeks (Predictable results)

Step 3 Full Cycle CountsOnce 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% + AccuracyYou can achieve 97%+ accuracyIf 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

An inventory accuracy audit technique where inventory is counted on a cyclic schedule rather than once a year. A cycle inventory count is usually taken on a regular, defined basis (often more frequently for high-value or fast moving items and less frequently for low-value or slow moving items). Most effective cycle counting systems require the counting of a certain number of items every work day with each item counted at a prescribed frequency. The key purpose of cycle counting is to identify items in error, thus triggering research, identification, and elimination of the cause of the errors.APICS Online DictionaryFind item in errorResearch errorIdentify cause of errorEliminate cause of errorContinual improvement of inventory accuracy

Todays problems. People should have the ability to manually add an item to tomorrows list. Any item that has a problem today is a good candidate.

Control group. Probably the least understood selection method is that of a control group. A control group is a small number of items that is a good representation of your overall inventory. number that will select a reasonable number of items to count each day.

Whats possibleThere are two ways to approach this question.First we could calculate how many counts we need to perform each year and calculate that back to number of counts per day. (Example: 5000 SKUs in database, A = 20 percent counted 12 times, B = 30 percent counted 4 times, C = 50 percent counted 1 time, totals 20,500 counts. Divide 20,500 by 240 working days = 85 counts per day). Second, we could work from the resource availability and determine how many counts are possible per day. (Example: We have four people, working half time on cycle counting and half time on inventory movements, so we have 16 hours of availability. Divide that by an aver-age of 12 minutes per item and you count cycle count approximately 80 items per day)Note that 12 minutes per count is a rough average determined by discussions with many companies. Your product characteristics may make that time significantly longer or shorter. Regardless which method you use, it is important to select a number of items that can reasonably be counted in the time available. To do otherwise simply positions your cycle counters for failure.Bill Latham, CFPIM, CIRM - Cycle Counting: Inventory Accuracy in the Real World (APICS International Conference, 2003)

Find item in errorResearch errorIdentify cause of errorEliminate cause of errorContinual improvement of inventory accuracy

The formula to determine how many parts to count a day is as follows:Determine how many A items you are counting, how many B items, etc. Divide the items by the number of days in the time period you intend to count that classification of items in. For example, you are counting 4 days a week, so biweekly would represent 8 days, monthly would represent 16 or 20 days (depending on if it is a 4 week month or a five week month), quarterly would represent 52 days (using the 4-4-5 calendar = 16+16+20 days).If you have 100 A items, then 100/8 = 13 items/dayIf you have 200 B items, then 200/16 = 13 items/dayIf you have 400 C items, then 400/52 = 8 items/dayOr all 600 items can be divided into 34 items/day