Cycle Counting Can Help Inventory Management

Sep 15, 2012 1:26 AM  By

Anne Embrey, vice president of fulfillment operations for Replacements Ltd., said her company maintains too much aged inventory with about 4% of orders being categorized as ‘problem’ orders. Embrey wants to know how to reduce that percentage. So we asked some industry experts for their opinions and the resounding answer was cycle counting.

Follow US!

@MCMerchant
Multichannel Merchant
Multichannel Merchant
Multichannel Merchant
O+F Operations and Fulfillment

Bruce Getowicz, director of distribution at Collections Etc., said a guiding principle behind a cycle count program is to keep your inventory accuracy in real time. The ultimate goal, Getowicz, said, is to eliminate the need to identify and adjust inventory discrepancies once a year with a physical inventory.

“This is only accomplished by an active cycle count program and performing counts on a regular basis either daily or weekly,” Getowicz said.

Your first decision is do you count by location or item, Getowicz explained. Counting by location means you have faith in your locator system. If items are not located correctly, they will be lost in a cycle count until you find the location the item is actually in with other counts.

“A cycle count program is a commitment and that requires resources,” Getowicz said. “I am a big supporter of cycle counts. They keep your inventory more accurate and help identify reasons why inventory is inaccurate allowing you to eliminate the problems.”

Tim Holody, chief operating officer at Seta/Palm Beach Jewelry, advised that if you’re just beginning cycle counts, then start with an aggressive counting of low volume locations. Holody said overall measurement must be conducted in two ways: net result of cycle counts gives the financial impact of your inventory adjustments; and gross (absolute) value of your inventory adjustments tells you how accurate your inventory really is. Net inventory accuracy should be in the 99+% and gross value of inventory adjustments should be 90+%.

Bill Kuipers, president of operations consultancy Spaide, Kuipers & Co., said a cycle count inventory program offers the following advantages:

It avoids the overwhelming task of full-scale physical inventories (business interruption, high cost, and questionable accuracy by untrained staff).

Accuracy improves because most active items are counted multiple times throughout the year rather than just once.

Improves picker productivity by reducing NILs (not in location) and improves customer service.

Kuipers noted that the biggest errors in full-scale physical inventories are generally not from counting errors, but rather mishandling of cutoffs for inbound receipts and returns. This is significantly reduced with cycle counting. Cycle count by both location and item.

Jim Tierney (jim.tierney@penton.com) is a senior writer for Multichannel Merchant. You can connect with him on Twitter (TierneyMCM) and LinkedIn, or call him at 203-358-4265.