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Cycle Counting

Prepared By:
Jaime Johnson
Boise State University
Spring Semester 2003
Training Overview
• What is Cycle Counting?
– Advantages
– Methods
• Learning the Concepts
• Can it Work for You?
• Exercise Problem
• A Real World Example
• Wrapping it Up
What is Cycle Counting?
• Definition:
– “a method for auditing inventory
accuracy and reconciles errors on
a cyclical schedule rather than
once a year.”
– A dynamic inventory audit that
allows for real time accuracy of
inventory items.
Advantages
• Accurate Inventory Records
– Errors and their Causes can be
Identified quickly and Corrective
Measures can be Implemented
• Good Bye Annual Inventory
• Allows for Continuation of
Business and Production
Methods
• The Geographic or Block Method

• The Ranking Method

• Random Sample Cycle Counting


Geographic or Block Method
(1 of 2)

• Identified by physical space


– By Shelf, By Bin, etc.

• Assists in the discovery of


misplaced or lost items

• Recommended to count entire


inventory 4 times per year
Geographic or Block Method
(2 of 2)

• Calculating the Determined


Number of Items
• Example:
– 10,000 items in inventory / 250 (#
of days in operation per year) = 40
counts
– 40 counts x 4 time per year = 160
products counted per day.
The Ranking Method
(1 of 5)

• Also known as, ABC Cycle Counting

• Counting the faster-moving / high $


items more frequently than the
slower-moving items

• Based on “Pareto’s Law”


– 80/20 Rule
The Ranking Method
(2 of 5)

• Items are ranked using ABC


Analysis

– “A” Rank Items (top 80%)


– “B” Rank Items (next 15%)
– “C” Rank Items (next 4%)
– “D” Rank Items (last 1%)
The Ranking Method
(3 of 5)

• Recommended Count Schedule

– “A” Rank Items 4 – 6 x per year


– “B” Rank Items 3 x per year
– “C” Rank Items 2 x per year
– “D” Rank Items 1 per year
The Ranking Method
(4 of 5)

Scheduling Example:
• Jan. “A” Items • July “A” Items
• Feb. “B” Items • Aug. “C” Items
• Mar. “A” Items • Sep. “A” Items
• Apr. “C” Items • Oct. “D” Items
• May “A” Items • Nov. “B” Items
• June “B” Items • Dec. “A” Items
The Ranking Method
(5 of 5)

• Calculating the Count Size


– 10,000 Items Total
• 2,000 “A” Items x 6 = 12,000 count
• 3,000 “B” Items x 3 = 9,000 count
• 4,000 “C” Items x 2 = 8,000 count
• 1,000 “D” Items x 1 = 1,000 count
– 30,000 counts / 250 days = 120
– 120 Items counted per day
Random Sample Cycle
Counting
• Statistical Technique
– Constant Population Counting
– Diminishing Population Counting

• Not Recommended if Inventory


Accuracy is Poor

• Only Establishes Conformance to


Expectations
Learning the Concepts
• Inventory = CA$H
– Improved Accuracy
– Control Over Inventory = Control
Over Costs
• Costs Include:
– Lost Sales Due to Stock Outs
– Lost Customers
– Inefficient Operations
Learning the Concepts
• Identifying Errors
– Shipping & Receiving
– Purchasing
– Sales
– Billing & Credit
• Take Corrective Measures
– Train on Procedures
– Train on Inventory Accuracy
Learning the Concepts
• Never Stop Looking at The
Process
– The Method
– The Schedule
– The Size of the Counts
– Tracking Accuracy
– Continual Training
Can It Work for You?
• How can cycle counting
enhance our current system?

• Which Method?

• Who would be responsible?


Exercise Problem
• The company is not sure if it wants
to use The Block Method or The
Ranking Method, what is the daily
count for each method and based on
the least number of items counted
per day which method would the
company choose if they had 12,000
total items, 2,400 “A”, 3,600 “B”,
4,800 “C”, and 1,200 “D” ?
A Real World Example
(1 of 2)

• Cascade Wholesale Hardware


Inc.

• In an article they recently


posted on their web site they
claim cycle counting helped
them find “holes” in their system
they never would have found
otherwise
• (WWW.Cascade.com/cycle.htm)
A Real World Example
(2 of 2)

• Some Problems Identified


– Receiving would sometimes not
report overages
– Not accounting for pending returns
before making adjustments
– Picking errors cause by too similar
part numbered items next to each
other
Wrapping it Up!
• Cycle Counting has Several
Advantages

• Methods Include
– The Geographic or Block Method
– The Ranking Method
– Random Sample Cycle Counting
Wrapping it Up!
• Cycle Counting can Assist in
Avoiding Costly Mistakes

• Cycle Counting Never Stops


References
Cascade Wholesale Hardware Inc.
www.cascade.com/cycle.htm.

“Cycle Counting.” May 1, 2003.


www.smfcpa.net/cycle.htm.

“Cycle Counting Can Eliminate Your


Annual Physical Inventory! (Part 1) &
(Part 2).” May 1, 2003.
www.effectiveinventory.com.
References
Graham, Gordon. Automated Inventory
Management For the Distributor. CBI
Publishing Co. Inc., 1980.

“Inventory Record Counting Accuracy,


Cycle Counting’s Role.” July 29,
2002. www.maskell.com/stahl1.htm.

Johnson, R. John. “Stepping it Up.”


Supply Chain Management Review.
Sep. 1, 2002.
References
Min, Hokey. “A World-Class Supplier Quality
Control Program.” Praxis, Best Practices in
Purchasing & Supply Chain Management.
Mar. 1998 v1 Iss3.

Piasecki, Dave. Inventory Accuracy: People,


Processes, & Technology. Ops Publishing,
March 2003.

Russell, S. Roberta & Taylor III, W. Bernard.


Operations Management Fourth Edition.
Prentice Hall, 2003.