Cycle Counting – the Secret to Inventory Accuracy

1. Bob Collins, CFPIM, CIRM SSI North America Chicago, IL APICS International President Cycle Counting – the Secret to Inventory Accuracy

2. Agenda • Inventory Accuracy • Periodic Physical Inventory • Cycle Counting • Cycle Counting in Oracle • How to get started!

3. Inventory Accuracy Reality or Oxymoron?

4. Sound familiar? • Can’t find parts your system says you have? • Expediting too many items? • Wasting time looking for parts? • Holding excess inventory “just in case?”

5. Root cause of Inaccurate Inventory Unrecorded Inventory Transactions

6. Receiving Put away Transfer from one location to another Material issue Extra issue of material Backflushing Shipments Removal to QA Return from QA Completions “Loans” to Sales, Engineering, R&D etc. Types of Transactions

7. Inventory Accuracy Demands Discipline!

8. True Cost of “missing” parts • Sam loses $100 of inventory/month • Lost material must be replaced with profit dollars • Distributor w/ 6% profit • $100 / .06 = $1666.67 • Must sell extra $1667/month to replace $100 of lost inventory!

9. Other costs • Wasted time looking for parts • Delayed customer orders • Wasted time in production • Excessive expediting costs • Excessive inventory carrying costs • $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$!

10. Two methods of “keeping inventory accurate” • Periodic physical inventory count • Cycle count program

11. Physical Inventory Count or Root Canal? You decide!

12. Periodic PhysicalInventory Count • Periodic physical count of inventory • Annually • Quarterly • Monthly • Expensive • Shut down production/shipping – sometimes for days • Unidentified or misidentified material

13. Periodic PhysicalInventory Count • Inexperienced, reluctant counters • Temptation to cut corners • Missing documents • Count, recount, audit counts • Cannot track down causes of errors • Often introduces more errors than it fixes

14. Accounting vs Manufacturing • Physical 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

15. (If you must) Tips to Improve Physical Inventory Counts • Set date early – time for prep • Determine counting method • Bar code • Count cards • Count Sheets • Determine who will count – train! • Map of facility

16. (If you must) Tips to Improve Physical Inventory Counts • Clean up first • Reduce inventory as low as you can • Ship what you can • Delay incoming materials • No receiving or shipping during count • Keep supplies on hand (Dots!)

17. (If you must) Tips to Improve Physical Inventory Counts • Pre-count (and audit) surplus supplies and slow moving items • Audit while your people are still counting • Don’t move misplaced material during count (note and move later) • Oracle Physical Inventory can help!

18. Cycle Counting– APICS Dictionary • Inventory counted on cyclical schedule • Count on regular, defined basis • Most effective - counting a certain number of items daily w/prescribed frequency for each item

19. The Key Purpose of Cycle Couting Determine and Eliminate CAUSES of inaccurate inventory

20. Cycle Counting Cycle Find error Eliminate cause of error Continual improvement Research error Identify cause of error

21. Cause Report

22. Common Causes for Errors • counting procedure/equipment • untrained personnel • carelessness • poor forms design • poor document control • inventory adjustments • lack of transaction discipline • midnight requisitions

23. Deciding What to Count • ABC analysis • Location counting • Negative on-hand items • When order placed • When order received • Today’s problems • Control Group

24. Deciding How Often to Count • ABC • After specified number of transactions • What’s possible with staffing level

25. Oracle Cycle Counting Set Up • Define ABC classes • If using ABC, compile an ABC analysis and assign your compiled items' ABC classes

26. Oracle Cycle Counting Set Up • Define a cycle count for the organization or subinventory level • Enter control and scope information • Enter autoschedule information • Define adjustments and ABC information • Enter ABC classes to include in your cycle count • Define cycle count items

27. Oracle Cycle Counting Set Up • Define 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

28. Oracle Cycle Counting Process • Generate daily, weekly, or period count requests and lists based on your schedule Enter counts • Count items generated • Approve, reject, or request recounts for cycle count adjustments based on approval tolerances

29. Don’t Forget the Cycle! Find error Eliminate cause of error Continual improvement Research error Identify cause of error

30. How to Start a Cycle Count Program

31. Step 1 – Controlled Test • Pick 100 representative parts • Divide into 25/day – Mon thru Thur • Friday for clean up • Begin with accurate count • Note and investigate variances each day • Keep track of daily accuracy percentage (spreadsheet)

32. Step 1 – Controlled Test • Cycle Counter uses checklist to investigate possible root causes • Oracle Transaction Summaries report will show transactions in system (go back one week) • After finding root cause, correct inventory record (spreadsheet)

33. Step 1 – Controlled Test • Record of cause, who will fix and when • Keep checking until you’ve attained 100% accuracy for two or three weeks (Predictable results) • If time available, also check negative on-hand items

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

35. Step 2 – An Expanded Test • Expand to a larger number of items (600 to 700?) • Use ABC categories • A – count bimonthly • B – count monthly • C – count quarterly • Keep inventory accuracy and cause records (spreadsheets)

36. Step 2 – An Expanded Test • Example formula for counts • Counting 4 days/week • A’s – every 2 weeks (once every 8 days) • 100 A items = 100/8 = 13 items/day • B’s – monthly (once every 16 days) • 200 B items = 200/16 = 13 items/day • C’s – quarterly (once every 52 days) • 400 C Items = 400/52 = 8 items day

37. Step 2 – An Expanded Test All 600 items can be divided into 34 items/day In a quarter, all A items will have been counted 6 times, B items 3 times, C items once. • Continue until you’ve attained 100% accuracy for two or three weeks (Predictable results)

38. Step 3 – Full Cycle Counts • Once 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.

39. 97% + Accuracy • You can achieve 97%+ accuracy • If accuracy level maintained long enough – you may be able to eliminate periodic physical inventory counts

40. Questions? Bob Collins, CFPIM, CIRMSSI North AmericaAPICSbob.collins@us.ssiworldwide.com