Affordable Distribution Management: Implement Cycle Counting

By Don Benson, P.E.

One of the processes almost every distribution center or warehouse consistently dreads, and that I continue to see in practice, is the once per year counting of the inventory. And yet many companies have for many years used a variety of alternate practices often called Cycle Counting to reduce their costs, improve the quality of inventory and order filling, and eliminate the once a year event. The results are substantial and yet often the resistance is great. If you have implemented Cycle Counting in your company, congratulations. You have taken a big step. For those of you that have not, you are missing a very big opportunity.

There are two major elements to address in the implementation of this change. The first and easiest is defining the new method of counting. In general, there are a couple of typical methods. The first is to identify the items by category and develop a schedule to count them. One structure is to:

Count "A" rank items (top 80 percent of sales or inventory value) six times per year.

Count "B" rank items (next 15 percent of sales or inventory value) three times per year.

Count "C" rank items (next 4 percent of sales or inventory value) twice per year.

Count "D" rank items (last 1 percent of sales or inventory value) and items with no sales count once per year.

This method works well for maintaining accurate inventory counts because it focuses effort on the items that move the most, which are those with the greatest opportunities for processing errors.

Another method of Cycle Counting is to divide the warehouse area into geographic locations. Start in one location and work your way through it until every location is counted. This method assures all parts are counted in a given period of time (perhaps every quarter) and may also turn up "missing" parts that may not be found in the ranking method. For both methods, the counting should be done during a time in which there is not planned activity for those items to minimize the adjustments or opportunities for error.

The remaining elements of this process are the same as what you might already be doing, verify counts, correct errors, and then look for and correct causes.

The second and hardest element to address in the implementation of this change is to identify, define, and work with the resistance. While Cycle Counting is not a new idea, I often I hear a variety of reasons why it has not been implemented, including that we first need better systems, or our systems do not support Cycle Counting, our accountants or our auditing firm is not ready, etc. I suggest that usually these are all just stalling tactics, and usually because there is not a champion to take the lead, define the process, direct the changes, get the approvals, and make it happen. It is important to recognize that there is important information in every resistance, because each of these elements must be addressed to be successful. This is your opportunity to grow your skills while improving the performance of your organization.

You can make the change process simple or sophisticated. You can work with or against all those who are offering resistance. You know your company, and you are responsible for improving warehouse operations. Take the initiative. And if you need someone to talk with along the way, to build your plan, to understand alternatives, you can reach me at coach@warehousecoach.com

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Other articles in this series:

Improving Distribution Operations

Evaluating Vendor Shipping Performance

Improving Labor Productivity

Picking Document Design

Implement Cycle Counting

Inventory Storage

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