Smarter Cylce Counting
By Bob Boyles, Principal
Smarter Distribution

Most companies that implement an automated inventory control system at some point in time, begin the process of cycle counting.  There are a number of reasons why companies try cycle counting:

• Some distributors hope that cycle counting will eliminate the need for an annual physical.
• Others distributors are just hoping to get the count in the system correct and increase the trust employees place in the computer.
• Many wholesalers implement a cycle count to reduce errors in picking and shipping and reduce the subsequent credits that are issued to customers.
• A few distributors take a consultant’s advice and try cycle counting as part of an overall program to improve their warehouse efficiency.

Cycle counting can help you achieve any or all of these goals. 

New managers that undertake a cycle counting program begin enthusiastically and review every days cycle counts.  As time marches on, the daily duty is handed over to a warehouse employee and the manager moves on to other more pressing tasks. The cycle count then becomes a part of the company’s operations.

This is when companies find that it is difficult to maintain a cycle counting program over a period of time.  They become frustrated with the time involved and the coordination required with the picking and the stock receipts processes.  Make no mistake, cycle counting takes discipline to be successful.

Astute managers began to realize that a routine of count then fix, count then fix and, count then fix was getting their counts right but was ignoring the real problem.   They began to see that there is one thing that is critical to an smarter cycle counting program and that is understanding what caused the stock errors to begin with!

You should be looking at every adjustment resulting from a cycle count and determine what caused the differential.   Generally, the problems will fall into five broad categories, put-away related problems, picking problems, paperwork errors, human errors and all others.

Put-away problems are some of the easiest to solve.  Generally, companies make the mistake of putting someone new on the stock receipts detail.  Material gets put into the wrong bin, a picker comes along in a hurry, pulls the wrong product and you’ve just started the process of delivering poor customer service.   Sometimes this type of error is the result of a product, having almost the same catalog number and being mistaken for a product substitute or replacement.

Picking problems may seem harder to solve because there are more people involved in the picking than put-away.  Most systems will track, when the order printed, who pulled it and who packed it.  Matching this data up with cycle-count fixes doesn’t take a rocket scientist.   But determining where the error was made can be difficult because no one wants to point fingers.

Paperwork errors will be your largest category of cycle count adjustments.  Paperwork errors can range from the order that everyone thought had left the warehouse is still waiting to be picked to the order that blew out the window of the delivery truck and never got billed.

Human errors involved in cycle counting are going to occur.  They are typically a remarkably small percentage of the errors you’ll see.

The dreaded “other” category can be anything from mislabeled or obsolete stock to theft.  These problems will need some thorough analysis.

One final suggestion is to take time to review recent transactions that have happened with a product.   Take following as an example:           

Where was the problem that caused the cycle count adjustment?  Since it’s been a month since the last shipment and we haven’t issued credit to the customer

we may assume the customers got what they ordered.  But we can confirm that by calling the branch that got the transfer and asking them, to take a look on their shelf and see what’s there.   If the transfer was the problem we may not only have fixed a problem in our warehouse but also in the remote warehouse as well.  Now we know that the person who picked the transfer made the mistake.

The idea here, is not to seek out and punish those employees that made a mistake but to begin to understand what’s going on in the warehouse that lead to the mistakes being made.  Companies that begin to analyze their cycle count errors and determine the root cause have an upper hand in making needed changes to warehouse procedure.  Whether it’s re-labeling the shelves or cleaning the warehouse or re-arranging the products on the shelf to make picking there are a number of changes that may not be obvious unless you are looking at the root cause.

If you are not analyzing the adjustments you’re making you’re just taking aspirin to mask the symptoms and not attacking the illness.  You will continue to cycle-count and not improve the accuracy of the inventory unless you take action to fix the root problems.

About Bob Boyles and Smarter Distribution:

Bob Boyles started his strategic consulting business in 2001 and has focused on the change that technology is forcing in the supply chain and how independent distributors can not only respond to that change but also maximize the return they are seeing on their investment. Bob has spent a significant amount of time as an Installation Consultant for several of the big name software companies in the distribution market. Working with hundreds of distributors across the country on installing, upgrading and utilizing their software.  Bob also worked as Corporate Systems Manager for one of the largest electrical wholesalers in the country as that company moved from a completely manual operation to an on-line real-time system. 

Bob is a graduate of Appalachian State University (BS - 1981) and University of North Carolina at Greensboro Graduate School of Business (MBA - 1985).

© Copyright 2002, Robert S Boyles, Jr. All rights reserved. This article cannot be reprinted or reproduced in whole or in part, without the express written permission of Robert S Boyles, Jr.