This is Part 2 of our cycle counting series. For Part 1, “Cycle Counting: What Every Inventory Manager Should Know About It,” click here.
How accurate are the inventory records? It’s a question you’ve probably asked yourself on more than one occasion.
It’s also the question answered by a 2011 study conducted by the University of Chicago. Their research found that a whopping 65% of the 370,000 inventory records they studied from 37 different retail stores contained errors.
Such extreme numbers aren’t required to make the inventory cycle counting cost justification case–but the presence of them sure doesn’t hurt it.
In a retail, distribution, manufacturing, or other inventory-centric business, it’s tough to underrate the influence that accurate inventory records can have on operational efficiency (lowering costs) and customer service (increasing sales).
Consider just a handful of the business benefits accurate inventory provides via improved efficiency and service:
|Operational efficiency improvements||Service improvements|
|less spending on “safety stock”||fewer lost sales due to out-of-stock items|
|reduced warehouse & carrying costs||fewer delays due to back-orders|
|trust in records permits use of automation||increased sales confidence during ordering|
|fewer misplaced items lowers picking costs||fewer wrong item shipments|
Cycle counting doesn’t require a major investment in equipment or human resources. But it’s complex enough that investing in capable software can make it considerably more efficient. For example, a consulting company named interlinkOne recently attributed their client’s reduction in cycle count labor time from 500 to 215 hours specifically to the adoption of suitable software.
There are thousands of inventory software products on the market today. Solutions range from souped up spreadsheets to complete warehouse management systems.
Not every inventory program supports the cycle counting approach, though. Getting the most out of a cycle count program means finding software that provides functionality for scheduling counts, handling accuracy and variance tracking, processing adjustments, and creating management reports.
In order to find a suitable cycle count solution for your company, look for solutions with the following critical features:
The fundamental requirement for supporting cycle counting is the ability to assign each item to a cycle count group. Yes, you could use a custom field. But if you find that that’s your only option, you can pretty safely assume the software doesn’t support any of the other features on this list.
Things change–especially inventory turn numbers and supply costs. Manually assigning inventory to ABC cycle groups is not only tedious, but it’s error prone. It’s a function that is best left to a program that can dynamically manage it per your specifications behind the scenes with accuracy and speed.
Who checks on what, when, and where with each cycle count? There’s a lot in that basic question. Access to basic scheduling and work order capabilities can make your cycle count program considerably easier to manage.
Precision in inventory management means not only knowing your stock count, but exactly where each item is. Efficient cycle counting requires location aware coordination in the scheduling of cycle counts, so that the items selected for each discrete count are located in reasonable proximity to each other.
One of the issues with physical inventory checks is confirmation bias. Simply knowing the expected count creates a kind of gravitational pull toward confirming that particular number–intentional or not. The ability to trigger work orders with or without the expected count listed offers a flexible approach for dealing with this issue.
Imagine you expect to find five items and you only find one; that’s 20% accuracy. But what if that same SKU is counted a day after receiving 95 more units? Your accuracy just rose to 96%–even though the same number of items are missing. There’s a better approach. Expressing differences in actual and expected counts as a function of inventory turns over time can provide a more precise accuracy metric.
For all its benefits, a challenge presented by cycle counting is the need to conduct it at the same time as other business activities. The ability to lock particular inventory records is a necessity for overcoming this challenge. Locking inventory records ensures that when items are up for cycle counting, they’re not simultaneously picked for order fulfillment or moved for other reasons.
What happens once you find an inventory discrepancy? The ability to define records adjustments protocol and track the observance of that protocol is a key feature in cycle count solutions. Flexibility is required to handle situations differently, as well. For example, higher value item discrepancies may prompt more extensive retrieval efforts and require postponing the actual records adjustment until those efforts have been completed.
As advantageous as bar-coding is versus manual counting, the difference between bar-coding and RFID tracking may be even more significant. In fact, a director at the large retailer Dillards recently reported a 96% time savings in cycle counts due to RFID adoption.
Executives are not only interested in inventory accuracy percentages as a KPI and driver of business success. CFO’s and CEO’s are paying closer attention to the accuracy of inventory records because of Sarbanes-Oxley requirements to certify the validity of quarterly financial statements. Advanced reporting and management dashboards provide a means of more effectively conveying large amounts of information.
If you missed it, make sure to check out Part 1 of our series, “Cycle Counting (Part 1): What Every Inventory Manager Should Know About It.” Also, for a broader discussion of materials and product management software topics, visit our inventory software and warehouse management software (WMS) solution guides.