Inventory Management 305

We have become adamant in the contention that only activity creates errors and that coupled with a subjective evaluation of risk, should be the sole determinants of items selected to be counted in a cycle-count program. The pure definition of cycle count, that is, an item (every item) is on a scheduled cycle to be counted once a year does not apply here. The resources are applied in areas thought to give the biggest return for the investment of labor.

The results are obviously here. The first reduced annual inventory was held in 1987. After years of wall-to-wall counts annually, in October, we, with the auditor's approval, counted only the top 80% of the dollars in the stockroom. As inventory accuracy grew and confidence in the record integrity grew, the following results were seen (Table 2).

As the number of counts went up, the accuracy of the inventory improved. Even after several years of direct effort, we still find errors that are attributable to procedural problems or carelessness. It is strongly felt that the frequency of auditing will diminish over time. A very high level of accuracy is sustainable (see 1989) with a low number of counts provided they are focused in risk and activity areas.

While we have but one year of no annual inventory, the principles that produced the continuously improving record accuracy were rooted in 1987. After five years of Activity-Based cycle counting, our Accounting group called a meeting shortly after the 1991 annual physical with the stated intention of convincing the outside auditors to eliminate the annual physical inventory. With much the same approach as to qualifying for ISO 9000, we worked to document and verify the existing process.