When it comes to proper warehouse management, it’s imperative to know exactly how much inventory you have in stock. Without this knowledge, it’s impossible to know what raw materials and components you need to order to meet the demands of your production line. This lack of information could create a range of issues, from having insufficient parts supplies to manufacture an end product, which would adversely impact your output, to having a surplus of materials that may even have a limited shelf life, which could have negative consequences for your bottom line.
In addition, if you don’t have an accurate overview of the inventory of your finished goods, you won’t be able to accurately predict whether or not you can fulfill your customers’ orders. Fortunately, there are several methods you can use to gain insights into precisely how much inventory you have and where discrepancies — if any — occur between your actual inventory and your inventory records.
The first method is a straightforward physical count of all of the items you have in inventory. If you encounter any inaccuracies in the records, you can correct them during the counting process. However, physical counts are a highly time-consuming method, since all production needs to be stopped until the count is completed.
A cycle count, on the other hand, is an ongoing method of auditing in which you count a specific portion of your inventory in a specific area of the warehouse on a predetermined day. It’s essentially a sampling technique — based on the sample that you count, you can deduce the numbers for the entire warehouse. With this type of count, the accuracy of the items in the portion you count reflects the accuracy of the items in the overall warehouse. In addition, if any inaccuracies are found in the portion you count, they’re likely to be present in other areas of the warehouse.
Inventory Cycle Count Best Practices
Based on our extensive experience advising manufacturing companies just like yours, here are some best practices for performing inventory cycle counts:
- Make cycle counting a regular part of your operations.
- Schedule cycle counts to be performed as frequently as possible in order to increase accuracy and decrease inventory write-offs.
- Classify items into ABC groups. Use inventory control software to divide items into three categories — ‘A’ representing the top 70 percent of inventory value, ‘B’ the next 15 percent and ‘C’ the lower 15 percent.
- Count each item at least once every three months.
- Close out any processes that could affect the number of items to be counted before performing a cycle count, and perform all counts at the beginning of daily operations.
- Create dedicated teams of employees who are adequately trained in cycle counting.
- Ensure that your process is well thought out and properly documented so that your employees have sufficient reference material.
- Have two employees perform cycle counts independent of each other. Then, compare their results before making any corrections to the inventory records.
- Examine any errors to determine why they occurred, and take corrective action as needed.
- To avoid errors, properly record the activities of the items that are being counted, or temporarily stall all transactions that involve those items until counting is completed.
- Set KPIs for inventory accuracy, and track metrics over time.
When performed properly, inventory cycle counts reduce the need for physical counts, which require a lot of resources and temporarily halt operations. To learn more about cycle counts as well as how MANTEC’s services can help your organization, contact us today.