The key to effective cycle counting is to not get bogged down in resolving every dollar, but rather focus on the significant discrepancies.
The main goal of cycle counting is to cycle through your inventory to ensure inventory accuracy on a consistent basis. (In contrast, a physical inventory is a point-in-time process, typically yearly, to ensure inventory accuracy). The keys are as follows:
- People: It is important to make sure the right resources have the right responsibilities. A counter requires a detail-orientation and should take counting seriously (it is amazing how much time and energy is saved with a cycle counter that understands the value of counting right the first time), whereas a reconciler requires an analytic ability with enough of a big picture understanding to make sense of the results and research.
- Cycle count frequency – cycle counting must be performed on a consistent enough basis to provide assurance that the inventory is continually reviewed (and can be relied upon). Best practice processes typically count weekly – at minimum, monthly.
- Cycle count calendar – the key is to make sure that you’ve cycled through your warehouse at least once a year and have covered 100% of your warehouse. Depending on your level of accuracy and impact on customer service, a more frequent basis might be required.
- Cut-off processes: you might as well throw out all your work if everything moves while its being counted. It is critical to identify a process that works for your business where you freeze the inventory for a period of time and/or coordinate closely on all moving parts and cut-off’s.
- Variance analysis: there is no reason to count if the majority of the emphasis isn’t on understanding your variance root causes and developing solutions. Don’t get bogged down in resolving every dollar – focus on the significant ones, and you’ll achieve the “80/20”. This is the key to an effective cycle counting program.