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Cycle Counts and Inventory Accuracy

04/07/2022 Kristin Leadingham

Sophisticated inventory management software is designed to solve the problem of inaccurate counts, but it is not a cure-all. Delays in order fulfillment and upset customers are inevitable if your warehouse is plagued by erroneous inventory counts. Additionally, in a time of rising costs, inaccurate purchasing decisions may be made based on those counts.

If your inventory data doesn’t match what you physically have in your warehouse, it’s time to take corrective action.

Achieve Accuracy

Unfortunately, there’s rarely a quick fix to inaccurate inventory counts. Most likely, you’ll need to employ a multi-pronged solution. First, turn your attention to defining and mapping your work processes. Work with your staff to gain a comprehensive understanding of all steps that affect inventory.

Also, chart the actual workflow and document how the processes should work down to the individual task level for each position involved in the process — from purchasing, receiving, and stocking, to order processing, fulfillment, and shipping. This includes completing and processing paperwork, entering data through automated scanning techniques or manually at workstations, and performing any required monitoring checks for inventory.

Next, ensure your employees are properly trained. Set up training sessions for all of your staff to review inventory processes and individual responsibilities. This will help them gain a solid understanding of workflow and how one process affects another.

Consider customizing your training so new employees receive more extensive training while more experienced employees receive periodic refresher courses as processes change. Test your employees on their knowledge of, and ability to perform expected tasks, and provide constructive guidance for correcting errors.

The next step is to set realistic goals for minimum inventory accuracy. On a routine basis, ideally monthly, identify and report causes of inventory inaccuracies — for example, causes may include improper counting, data entry errors, or goods lost to theft, damage, or disorganization. Translate what these inaccuracies mean in terms of lost profit.

Finally, continuously improve your processes. Review your operations with your staff to pinpoint broken processes and identify solutions for reducing errors. This will allow you to incorporate enhancements or new processes as business needs change.

Try to batch together several process improvements at one time to avoid confusing employees with multiple process iterations. Then, roll out the changes through formal training sessions to ensure everyone is on the same page.

Implement Cycle Counting

To help you reach your inventory accuracy goal, be sure to include cycle counting. Cycle counting involves taking a physical count of part of your inventory in the warehouse on a regular interval (i.e., daily, weekly, monthly, or quarterly).

These physical counts are compared against the levels shown on your inventory management system. By pinpointing inventory discrepancies, cycle counting helps you identify the source of accuracy problems, so you can implement the correct solutions.

To this end, there are two types of cycle counting—they should be employed together:

  1. Control group cycle counting. This type of counting involves selecting a control group made up of a cross-sectional sample of inventory, including parts and materials, and then counting the control group and comparing it against your inventory management system data. Control groups are rotated according to an established set schedule to ensure that all inventory in the warehouse is counted annually. Control group cycle counting should be performed weekly so that you are able to swiftly identify the source of any errors.
  2. Random cycle counting. After you’ve implemented control group cycle counting, identified any sources of inventory accuracy problems, and put the necessary solutions in place, begin implementing random cycle counting. With this type of counting, take a random mathematical sampling of your inventory to assess conformance against inventory accuracy expectations. An inference of the accuracy is then made relative to the entire inventory.

Cycle counting shouldn’t be a one-time event. Conducted frequently, it will ensure continuous improvement in the accuracy of inventory.

Does It Add Up?

If inaccurate inventory counts plague your company, you need to take corrective steps as soon as possible. Failing to take proactive measures may result in a loss of customers, reduced profits, and inaccurate records making demand planning difficult. If you need help remedying inventory inaccuracy, contact Kristin Leadingham (kleadingham@vlcpa.com) or Jake Coffey (jcoffey@vlcpa.com) or call 800.887.0437.

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