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.