Cycle Counting the Secret to

Inventory Accuracy
Bob Collins, CFPIM, CIRM
SSI North America
Chicago, IL
APICS International President
Agenda
Inventory Accuracy
Periodic Physical Inventory
Cycle Counting
Cycle Counting in Oracle
How to get started!
Sound familiar?
Cant find parts your system says
you have?
Expediting too many items?
Wasting time looking for parts?
Holding excess inventory just in
case?
Types of Transactions
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.
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!
Other costs
Wasted time looking for parts
Delayed customer orders
Wasted time in production
Excessive expediting costs
Excessive inventory carrying costs
$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$!
Two methods of keeping
inventory accurate
Periodic physical inventory count
Cycle count program
Periodic Physical
Inventory Count
Periodic physical count of inventory
Annually
Quarterly
Monthly
Expensive
Shut down production/shipping
sometimes for days
Unidentified or misidentified material
Periodic Physical
Inventory 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
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
(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
(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!)
(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
Dont move misplaced material
during count (note and move later)
Oracle Physical Inventory can help!
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
Cycle Counting Cycle
Continual
improvement
Find error
Research
error
Identify cause
of error
Eliminate
cause of error
Cause Report
Cycle Count Cause Report
Date ___________________
By: ____________________
Date
No of
items
counted
Number
with
variance
Outside
Tolerence
% with
signficant
error Location
Missing
docs
Scale
eroor Lagtime
Wrong
identity Other
3-Mar 120 20 10 8.33% 2 1 3 1 2 1
4-Mar 110 12 6 5.45% 1 2 1 2
5-Mar 115 30 4 3.48% 1 2 1
6-Mar 125 21 12 9.60% 2 1 8 1
7-Mar 120 15 6 5.00% 1 2 1 1 1
Totals 590 98 38 6 7 12 5 6 2
% 17% 6% 16% 18% 32% 13% 16% 5%
Common Causes for Errors
counting procedure/equipment
untrained personnel
carelessness
poor forms design
poor document control
inventory adjustments
lack of transaction discipline
midnight requisitions
Deciding What to Count
ABC analysis
Location counting
Negative on-hand items
When order placed
When order received
Todays problems
Control Group
Deciding How Often to Count
ABC
After specified number of
transactions
Whats possible with staffing level

Oracle Cycle Counting Set Up
1. Define ABC classes
2. If using ABC, compile an ABC
analysis and assign your compiled
items' ABC classes
Oracle Cycle Counting Set Up
3. 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
Oracle Cycle Counting Set Up
4. Define cycle count classes
5. Define cycle count items
6. Automatically schedule item counts
using ABC count frequencies
7. Manually schedule counts for the
following inventory control details
items, or specific revisions, lots
subinventories or specific locators
Oracle Cycle Counting Process
1. Generate daily, weekly, or period
count requests and lists based on
your schedule Enter counts
2. Count items generated
3. Approve, reject, or request
recounts for cycle count
adjustments based on approval
tolerances
Dont Forget the Cycle!
Continual
improvement
Find error
Research
error
Identify cause
of error
Eliminate
cause of error
Step 1 Controlled Test
1. Pick 100 representative parts
2. Divide into 25/day Mon thru Thur
3. Friday for clean up
4. Begin with accurate count
5. Note and investigate variances
each day
6. Keep track of daily accuracy
percentage (spreadsheet)
Step 1 Controlled Test
6. Cycle Counter uses checklist to
investigate possible root causes
7. Oracle Transaction Summaries
report will show transactions in
system (go back one week)
8. After finding root cause, correct
inventory record (spreadsheet)
Step 1 Controlled Test
9. Record of cause, who will fix and
when
10. Keep checking until youve
attained 100% accuracy for two or
three weeks (Predictable results)
11. If time available, also check
negative on-hand items
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
Step 2 An Expanded Test
1. Expand to a larger number of items
(600 to 700?)
2. Use ABC categories
A count bimonthly
B count monthly
C count quarterly
3. Keep inventory accuracy and cause
records (spreadsheets)
Step 2 An Expanded Test
4. Example formula for counts
Counting 4 days/week
As every 2 weeks (once every 8 days)
100 A items = 100/8 = 13 items/day
Bs monthly (once every 16 days)
200 B items = 200/16 = 13 items/day
Cs quarterly (once every 52 days)
400 C Items = 400/52 = 8 items day
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.
5. Continue until youve attained 100%
accuracy for two or three weeks
(Predictable results)
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.
97% + Accuracy
You can achieve 97%+ accuracy
If accuracy level maintained long
enough you may be able to
eliminate periodic physical inventory
counts
Questions?





Bob Collins, CFPIM, CIRM
SSI North America
APICS
bob.collins@us.ssiworldwide.com