Cycle Count Your Products on a Regular Basis-Cycle Counting, Part 1

Cycle Count Your Products on a Regular Basis

Cycle Counting, Part 1

Many distributors conduct an annual physical inventory. That is, they count the products in their facilities once a year.  Unfortunately we’ve found that most physical inventories are a total waste of time and money. Why?

Usually anyone with a pulse is drafted to count inventory during the physical. Even people who are not familiar with your products (like the receptionist and her brother-in-law) will be sent out to the warehouse so that all of the products can be counted in the time allotted.

Workers do not enjoy the physical count process. They probably have better things to do with their weekend than spend it in a hot or cold warehouse counting products. In all probability their actual objective is not to perform an accurate count, but to put down on the count sheet whatever management will accept so they can go home.

There is a tremendous time pressure to finish the count. Shutting down operations for a physical count is a very expensive process. Usually at the end of the time allotted, management will decide to accept the existing count as being as “accurate as possible” so that the company can return to the task of servicing customers. Many discrepancies between the computer’s perpetual inventory and the quantity counted may remain unresolved.

Even if an annual physical count is 100 percent accurate, how long does it stay accurate? A week? A month? Many distributors respond that on-hand quantities only remain accurate until they start shipping material again.  For most distributors, cycle counting provides a much better tool for maintaining accurate stock levels than an annual physical inventory. Cycle counting is the process of counting a few products every business day throughout the year.

There are three common methods to determine what products to count on a specific day:

Random selection—Products to be counted are chosen at random. While this method keeps potentially dishonest employees on their toes, it does not ensure that all items in a warehouse will be counted on a regular basis.

Geographic selection—Products are counted in sequence. Starting at one end of the warehouse a certain number of products are counted each day until the counters reach the other end of the building. All products are counted the same number of times, even though some products are more susceptible to discrepancies than others.

Rank-based selection—Products that are sold most often (regardless of quantity) or have the highest cost of goods sold are counted most frequently. Slow-moving products and dead stock items are only counted once a year.

Of the three methods, we’ve found rank-based cycle counting to be the most effective at maintaining accurate stock levels. The more frequently an item is sold, the more chance for inventory inaccuracy. After all, every time someone fills an order or puts away a stock receipt is another opportunity for an error to occur. And the products that are requested most often are probably extremely important to your customers. In order to provide good service, it is critical that you have accurate counts for these items.

It is interesting that, for most distributors, relatively few products are responsible for the majority of product requests (also known as “hits”). You may have heard of the 80–20 rule or “Pareto’s Principle.” This theory states that 80 percent of your sales are derived from 20 percent of your inventory items. We’ve found this not to be true. Usually only 10–13 percent of a distributor’s inventory items are responsible for 80 percent of activity and 50 percent of items are responsible for 95 percent of sales.

We want to count the few items responsible for 80 percent of sales very frequently, perhaps four to eight times a year. Items with fewer hits can be counted less often. Let’s look at a typical rank-based cycle counting program.Items are sorted in descending sequence by hits. The items that are responsible for 80 percent of total activity are assigned to the “A” rank, products responsible for the next 15 percent of activity are assigned to the “B” rank, “C” rank products include the products that are responsible for the next 4 percent of activity, and “D” rank products are responsible for the last 1 percent of activity. Products with a rank of “X” have no activity (they’re dead stock).

• Count the “A” rank products six times a year

• Count the “B” rank products three times a year

• Count “C,” “D,” and “X” rank products once or twice a year

Rank-based cycle counting ensures that your counting activity is productive. Spending just an hour or so a day counting can make the difference in maintaining an accurate perpetual inventory system. It takes a lot of discipline to implement and follow a program in which you count a certain number of products every business day. Many distributors have tried cycle counting and abandoned the program. They’ve been frustrated as other tasks have interfered with the process or they have not been able to complete counting all of the products scheduled on a certain day. The following ideas have helped many of our customers develop successful cycle counting programs. These companies are working “smarter” rather than “harder.”

Find out more by contacting iCepts Technology by CLICKING HERE

Cycle Count Your Products on a Regular Basis-Part 2

Cycle Count Your Products on a Regular Basis

Cycle Counting, Part 2

Some people think that you must cycle count before or after normal business hours, when there is little or no material movement. Though ideal, this is impractical for many distributors. We’ve found a simple method that allows cycle counting to be performed during the business day:

1. The counter obtains a list of the products to be counted that day.

2. He or she places a label reading “Cycle Count Today” on the bins that are being counted and a card in or on the bin.  This card lists the item and bin number along with four columns with the following headings:

• Time

• Transaction Type

• Order Number

• Quantity

3. The counter prints a listing of items to be cycle counted, including the current on-hand or shelf quantity. He notes the time that the report is printed.

4. If a quantity of a product is removed from or added to a bin marked “Cycle Count Today,” the warehouse person will note the time, transaction type (that is, sales order or stock receipt), order number, and quantity on the card that was previously distributed.

5. When the counter counts a specific bin he will examine the transactions listed on the card. If an order was filled after the count sheet was printed he will add the quantity on that order to the quantity found in the bin. The resulting total amount should agree with the on-hand quantity on the count sheet (that is, the computer’s perpetual inventory quantity when the report was printed). He will make similar adjustments for the other transactions listed on the card.

Cycle counting is a very important element in a program to maintain accurate stock balances. Most highly profitable, successful distributors have established cycle counting programs. One of the advantages of implementing a radio frequency bar coding system is to simplify the cycle counting process. Because the computer’s on-hand stock quantities are updated as soon as material is scanned, the quantity in the bin should always agree with the stock level in the computer. These systems can be programmed to occasionally prompt a picker to verify the remaining balance in a bin after an order has been filled. As a result, cycle counting becomes a byproduct of the order-filling process!

If you don’t know what is actually in your warehouse or storeroom, you cannot provide customers with reliable stock availability information and you won’t reorder products at the proper time. Maintaining accurate stock balances is a vital component of an effective inventory management program. Without correct on-hand quantities it is difficult if not impossible to meet your customer service and profitability goals. You will also not be able to take advantage of the inventory management tools available in today’s advanced computer software packages.

Find out more by contacting iCepts Technology Group at info@icepts.com

Cycle Count Your Products on a Regular Basis-Part 1

Cycle Count Your Products on a Regular Basis

Cycle Counting, Part 1

Many distributors conduct an annual physical inventory. That is, they count the products in their facilities once a year.  Unfortunately we’ve found that most physical inventories are a total waste of time and money. Why?

Usually anyone with a pulse is drafted to count inventory during the physical. Even people who are not familiar with your products (like the receptionist and her brother-in-law) will be sent out to the warehouse so that all of the products can be counted in the time allotted.

Workers do not enjoy the physical count process. They probably have better things to do with their weekend than spend it in a hot or cold warehouse counting products. In all probability their actual objective is not to perform an accurate count, but to put down on the count sheet whatever management will accept so they can go home.

There is a tremendous time pressure to finish the count. Shutting down operations for a physical count is a very expensive process. Usually at the end of the time allotted, management will decide to accept the existing count as being as “accurate as possible” so that the company can return to the task of servicing customers. Many discrepancies between the computer’s perpetual inventory and the quantity counted may remain unresolved.

Even if an annual physical count is 100 percent accurate, how long does it stay accurate? A week? A month? Many distributors respond that on-hand quantities only remain accurate until they start shipping material again.  For most distributors, cycle counting provides a much better tool for maintaining accurate stock levels than an annual physical inventory. Cycle counting is the process of counting a few products every business day throughout the year.

There are three common methods to determine what products to count on a specific day:

Random selection—Products to be counted are chosen at random. While this method keeps potentially dishonest employees on their toes, it does not ensure that all items in a warehouse will be counted on a regular basis.

Geographic selection—Products are counted in sequence. Starting at one end of the warehouse a certain number of products are counted each day until the counters reach the other end of the building. All products are counted the same number of times, even though some products are more susceptible to discrepancies than others.

Rank-based selection—Products that are sold most often (regardless of quantity) or have the highest cost of goods sold are counted most frequently. Slow-moving products and dead stock items are only counted once a year.

Of the three methods, we’ve found rank-based cycle counting to be the most effective at maintaining accurate stock levels. The more frequently an item is sold, the more chance for inventory inaccuracy. After all, every time someone fills an order or puts away a stock receipt is another opportunity for an error to occur. And the products that are requested most often are probably extremely important to your customers. In order to provide good service, it is critical that you have accurate counts for these items.

It is interesting that, for most distributors, relatively few products are responsible for the majority of product requests (also known as “hits”). You may have heard of the 80–20 rule or “Pareto’s Principle.” This theory states that 80 percent of your sales are derived from 20 percent of your inventory items. We’ve found this not to be true. Usually only 10–13 percent of a distributor’s inventory items are responsible for 80 percent of activity and 50 percent of items are responsible for 95 percent of sales.

We want to count the few items responsible for 80 percent of sales very frequently, perhaps four to eight times a year. Items with fewer hits can be counted less often. Let’s look at a typical rank-based cycle counting program.Items are sorted in descending sequence by hits. The items that are responsible for 80 percent of total activity are assigned to the “A” rank, products responsible for the next 15 percent of activity are assigned to the “B” rank, “C” rank products include the products that are responsible for the next 4 percent of activity, and “D” rank products are responsible for the last 1 percent of activity. Products with a rank of “X” have no activity (they’re dead stock).

• Count the “A” rank products six times a year

• Count the “B” rank products three times a year

• Count “C,” “D,” and “X” rank products once or twice a year

Rank-based cycle counting ensures that your counting activity is productive. Spending just an hour or so a day counting can make the difference in maintaining an accurate perpetual inventory system. It takes a lot of discipline to implement and follow a program in which you count a certain number of products every business day. Many distributors have tried cycle counting and abandoned the program. They’ve been frustrated as other tasks have interfered with the process or they have not been able to complete counting all of the products scheduled on a certain day. The following ideas have helped many of our customers develop successful cycle counting programs. These companies are working “smarter” rather than “harder.”

Find out more by contacting iCepts Technology at info@icepts.com

Cycle Count Your Products on a Regular Basis-Cycle Counting Part 2

Cycle Counting, Part 2

Some people think that you must cycle count before or after normal business hours, when there is little or no material movement. Though ideal, this is impractical for many distributors. We’ve found a simple method that allows cycle counting to be performed during the business day:

1. The counter obtains a list of the products to be counted that day.

2. He or she places a label reading “Cycle Count Today” on the bins that are being counted and a card in or on the bin.  This card lists the item and bin number along with four columns with the following headings:

• Time

• Transaction Type

• Order Number

• Quantity

3. The counter prints a listing of items to be cycle counted, including the current on-hand or shelf quantity. He notes the time that the report is printed.

4. If a quantity of a product is removed from or added to a bin marked “Cycle Count Today,” the warehouse person will note the time, transaction type (that is, sales order or stock receipt), order number, and quantity on the card that was previously distributed.

5. When the counter counts a specific bin he will examine the transactions listed on the card. If an order was filled after the count sheet was printed he will add the quantity on that order to the quantity found in the bin. The resulting total amount should agree with the on-hand quantity on the count sheet (that is, the computer’s perpetual inventory quantity when the report was printed). He will make similar adjustments for the other transactions listed on the card.

Cycle counting is a very important element in a program to maintain accurate stock balances. Most highly profitable, successful distributors have established cycle counting programs. One of the advantages of implementing a radio frequency bar coding system is to simplify the cycle counting process. Because the computer’s on-hand stock quantities are updated as soon as material is scanned, the quantity in the bin should always agree with the stock level in the computer. These systems can be programmed to occasionally prompt a picker to verify the remaining balance in a bin after an order has been filled. As a result, cycle counting becomes a byproduct of the order-filling process!

If you don’t know what is actually in your warehouse or storeroom, you cannot provide customers with reliable stock availability information and you won’t reorder products at the proper time. Maintaining accurate stock balances is a vital component of an effective inventory management program. Without correct on-hand quantities it is difficult if not impossible to meet your customer service and profitability goals. You will also not be able to take advantage of the inventory management tools available in today’s advanced computer software packages.

Find out more by contacting iCepts Technology at info@icepts.com