Establishing an efficient and effective inventory cycle count process provides a Company with many benefits. Companies will be able to identify inventory process problems quickly, and corrections to the inventory process can be done immediately to avoid operational problems. Additionally, performing cycle counts can help reduce or eliminate the need for an annual physical count. There are four key elements for preparing an efficient inventory cycle count.
Preparing an inventory strategic plan (“inventory plan”)
Preparing an inventory plan should include the following key questions:
- Company’s current inventory accuracy rate
- Company’s inventory accuracy rate goal
- Inventory method currently being used (i.e. Geographic vs. ABC methods) and the related frequencies of your cycle count and biggest challenges with the count
- Mapping of current inventory flow process
- Elements of the Company’s business plan as it relates to inventory
- Listing of management support
- Training methods
Establishing the Company’s inventory accuracy rate
An accuracy rate of 95% with a +/– 5% variance is customary for manufacturing and distribution companies. The accuracy rate should be determined based on industry standards and approved by executive management prior to implementing.
Determining the cycle count method using the Geographic or ABC method
Geographic counting is common and easy to implement. When using the geographic method, a Company groups like items in close proximity of each other by type. Then, the Company counts these locations at different times of the year based on factors established in the Company’s inventory plan. ABC counting is more complex, but provides better accuracy and is based off of an inventory ranking system, such as by high dollar items, low dollar items, inventory product type, fast moving inventory, slow moving inventory, etc. The Company assigns an “A-B-C” order to the ranked inventory. “A” type items are counted more frequently, “B” type items are counted less than the “A’s”, “C” types are counted less than the “B” types and “D” type items are counted the least. The next step would be to set the frequency of the cycle count (i.e. every day count 1-3 items) and set up an inventory count calendar.
Training and maintaining good communication with your inventory personnel
Training can occur while putting together the inventory plan. Separate training sessions could be developed to instruct personnel how to organize the inventory, what anomalies to look for during the count, and how to identify lost or misplaced items. There are also outside training courses that provide more detailed information about the different inventory processes.
Please contact your LSL Advisor at 714.569.1000 to get more information or assistance with your inventory plan.
By: Jessica E. Vasquez
