Cycle Counting - The Distributor's Penicillin
by Scott Stratman
Inventory accuracy is essential to realizing your highest profit potential. Without knowing (with a high degree of accuracy) what you have in stock, you cannot confidently sell to your customers, buy additional products, or manage your warehouse operations. Inaccurate inventory creates a number of problems throughout the organization. If not managed, it becomes an “illness” that runs rampant and infects every aspect of the company.
The good news is that there is a cure. Cycle counting is one of the most effective tools to address many of the illnesses caused by inventory inaccuracy. Cycle counting, when done right, can create a high degree of confidence with your personnel that what the system says you have in stock, is what you actually have in stock. Just imagine how nice that would be!
Cycle counting is fairly easy to implement. In essence, you are deciding that you want to count all your products throughout the year instead of just once or twice a year. Doing an annual physical inventory count is not nearly as effective as counting your assets on a recurring basis.
There are various ways to cycle count. With some initial planning, you can start immediately and see the results equally as fast. Here are the steps you will need to follow to make cycle counting a way of life in your business.
First, determine how many items you want to count on the days you are counting.
Suppose you have 20,000 SKUs
You want to count every item 4 times during the year (recommended)
You have roughly 200 days available for counting out of the year
(50 weeks x 4 days per week)
Now do the math:
20,000 x 4 = 80,000 items counted per year
80,000 / 200 = 400 items counted per day
Once you determine how many items you will need to count every day, you need to find the best time of the day to count. For most distributors, early mornings work best. This is often the time when activity is low and orders are not being picked yet for the day.
It is also important to determine who would be the best at cycle counting. Try to select personnel that are very familiar with your products and your warehouse layout. You will be amazed at how many items they can accurately count in a couple hours.
You can also consider a few different counting strategies:
- Count using a "shelf to sheet" approach. You print out a sheet with all the items to be counted that day without quantities. Have the counters count what is on the shelf and mark that number on the sheet. Then compare the counts to what your system says you have in stock for each item.
- Use the "wall to wall" counting approach where you start at point A, and you count every item from that point until you reach the other end of your warehouse. You are counting everything between the walls of your building.
- You might want to use the "higher cost" method, whereby those items with the highest cost get counted more often than other items. You are still counting all items a few times a year, but these high cost items get counted more often.
- The A, B, C, D method means you will count your A & B items more often than your C & D items. If your D items are dead stock, this makes perfect sense. Dead stock does not need to be counted more than once a year.
- Zone or Area counting makes sense if your warehouse is set up in this manner. A zone or area can be counted often to ensure the highest degree of accuracy.
Most importantly, cycle counting should be a way of life in your business. It cures many mistakes and reduces errors. It is "penicillin" for your business.
Scott Stratman is vice president, business development, for Tech Systems Inc. He has an extensive background in working with distributors around the globe. Many distributors are familiar with Scott from his previous role as founder and president of The Distribution Team Inc.Contact him at Scotts@techsystems.biz.
We track as a process of cycle counting, dollar variances overall, dollar variances at the bin, item accuracy overall and item accuracy at the bin. This is the only way you can measure to determine whether your cycle counts are making a difference throughout your entire inventory flow process.