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

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. Unrecorded Inventory Transactions
Root cause of
Inaccurate Inventory
Unrecorded
Inventory
Transactions

6. 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.

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 = $
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
Root Canal?
You decide!

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

13. 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

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
An inventory accuracy audit technique where inventory is counted on a cyclic schedule rather than once a year. A cycle inventory count is usually taken on a regular, defined basis (often more frequently for high-value or fast moving items and less frequently for low-value or slow moving items). Most effective cycle counting systems require the counting of a certain number of items every work day with each item counted at a prescribed frequency. The key purpose of cycle counting is to identify items in error, thus triggering research, identification, and elimination of the cause of the errors.
APICS Online Dictionary

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

20. Eliminate cause of error Continual improvement Identify cause of error
Cycle Counting Cycle
Find error
Eliminate cause of error
Continual improvement
Find item in error
Research error
Identify cause of error
Eliminate cause of error
Continual improvement of inventory accuracy
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
Today’s problems. People should have the ability to manually add an item to tomorrow’s list. Any item that has a problem today is a good candidate.
Control group. Probably the least understood selection method is that of a control group. A control group is a small number of items that is a good representation of your overall inventory. number that will select a reasonable number of items to count each day.

24. Deciding How Often to Count
ABC
After specified number of transactions
What’s possible with staffing level
What’s possible
There are two ways to approach this question.
First we could calculate how many counts we need to perform each year and calculate that back to number of counts per day. (Example: 5000 SKUs in database, A = 20 percent counted 12 times, B = 30 percent counted 4 times, C = 50 percent counted 1 time, totals 20,500 counts. Divide 20,500 by 240 working days = 85 counts per day). Second, we could work from the resource availability and determine how many counts are possible per day. (Example: We have four people, working half time on cycle counting and half time on inventory movements, so we have 16 hours of availability. Divide that by an aver-age of 12 minutes per item and you count cycle count approximately 80 items per day)
Note that 12 minutes per count is a rough average determined by discussions with many companies. Your product characteristics may make that time significantly longer or shorter. Regardless which method you use, it is important to select a number of items that can reasonably be counted in the time available. To do otherwise simply positions your cycle counters for failure.
Bill Latham, CFPIM, CIRM - Cycle Counting: Inventory Accuracy in the Real World (APICS International Conference, 2003)

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. Eliminate cause of error Continual improvement Identify cause of error
Don’t Forget the Cycle!
Find error
Eliminate cause of error
Continual improvement
Find item in error
Research error
Identify cause of error
Eliminate cause of error
Continual improvement of inventory accuracy
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
The formula to determine how many parts to count a day is as follows:
Determine how many A items you are counting, how many B items, etc. Divide the items by the number of days in the time period you intend to count that classification of items in. For example, you are counting 4 days a week, so biweekly would represent 8 days, monthly would represent 16 or 20 days (depending on if it is a 4 week month or a five week month), quarterly would represent 52 days (using the calendar = days).
If you have 100 A items, then 100/8 = 13 items/day
If you have 200 B items, then 200/16 = 13 items/day
If you have 400 C items, then 400/52 = 8 items/day
Or all 600 items can be divided into 34 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, CIRM SSI North America APICS