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Intermediate Phase of Cycle Counting

The risk of error is not the same for all items in a typical inventory. Ideally, the frequency of cycle counting should increase as the risk of error increases. There are several techniques for varying the cycle count frequency in order to improve the overall accuracy of the records.

One method is to divide the inventory by ABC classification on a different cycle, e.g., "A" items monthly, "B" items quarterly, and "C" items annually. The "A" items with their greater dollar usage, higher reorder frequency and lower tolerance for error are counted more frequently. Other techniques call for the selection of items to be counted directly from activity criteria, such as when a reorder is indicated, upon receipt of a replenishment lot, when the inventory record becomes zero, when the last item is issued, when the inventory record shows a negative bal­ance, or when a predetermined number of transactions has been recorded.

Impact of Just-in-Time on Cycle Counting

The implementation of Just-in-Time (JIT) in a manufac­turing environment impacts cycle counting in subtle but significant ways:

• Since Kanbans have replaced shop orders it is no longer necessary to verify that the material in work-in-process (WIP) is in correct quantity to satisfy the requirements of open shop orders.
• There are no kits of material to disassemble and count because kitting has been eliminated.
• It is not unusual to have multiple storage locations for the same purchased or manufactured item—one in the stockroom and several in the factory at the point of use. To count by part number is no longer practical; that would entail stopping production to count something being counted in the stockroom. Instead the stockroom will be counted independently of the factory locations. Inventory record accuracy will be verified by the num­ber and location rather than item number alone.
• JIT says that inventory sitting idle is waste. As there is less and less inventory in the stockrooms and ware­house, the level of inventory record accuracy will become more and more important.

Techniques of Counting

Accurate counting is difficult, even under the best of circumstances. Some of the techniques for speeding up the counting process and improving accuracy include scale counting, hand counter with marker, location planning, orderly stacking, groups of ten or other multiples, nested containers, optical character recognition (OCR), magnetic stripe, bar coding, and voice recognition.

Procedure for Cycle Counting

The first step in cycle counting is to decide on the method for selecting the items to be counted. Information to be included on the cycle counting record include the item number, lot number or serial number, locations, unit of measure, count quantity date and time of count as well as the name of the cycle counter.

Since cycle counting is done without shutting down opera­tions, procedures should be established to synchronize counting and transaction processing. These procedures must identify and isolate all transactions that occurred after the on-hand balance was reported and before the actual count was made. This information is needed to reconcile the on-hand balance with the count.

Cycle Count Reconciliation

To reconcile a cycle count, the cycle count is compared with the inventory record balance. If the variance is within the specified tolerances, the inventory record is adjusted to agree with the cycle count. If the variance exceeds the
specified tolerance, it constitutes a significant error and further investigation is required. If the recount results in the same variance, possible error factors should be inves­tigated to pinpoint the cause for the discrepancy. Investi­gation of the specific causes requires a persistent effort.

Location audits must be conducted in addition to the cycle counts to ensure that all items in a location are counted, and that no storage location is overlooked.

To be Continued