20 Questions to Ask Yourself Before Implementing a Cycle-Count Program
By Mark Tomalonis
Principal, WarehouseTWO, LLC
In a recent article, I presented the benefits of implementing cycle-counting of your inventory over performing a once-per-year, wall-to-wall physical inventory count. If you are considering making the switch to cycle-counting, first ask yourself these 20 questions. These questions, and your thoughtful answers, should guide you to a successful deployment of cycle-counting at your company.
The Big Picture
- What must you provide to your annual financial auditor to convince him/her that your cycle-count program adequately replaces an annual wall-to-wall physical inventory count? “Item count accuracy”, exactly how many of which items you have in stock, should matter to your employees and to your customers. But the only thing that your auditor likely cares about is “inventory value accuracy”. “Item count accuracy” ensures “inventory value accuracy” (assuming unit cost values in your computer system are accurate), but not the other way around. Still, you will have to prove to your auditor, via detailed cycle-count records and spot-check counts of high-value items, that your stated “inventory value” is accurate.
- Who will be accountable for the success (or failure) of your cycle-counting system? Three things that all companies could have more of: accountability, praise when something works well, and consequences when it does not. We recommend that the person ultimately responsible for the success of your cycle-count program have a title that includes the word “manager”, “director” or “vice”, but not “warehouse”.
- Who in your company will be performing cycle-counts? I recommend that your warehouse staff perform the cycle-counts, not other resources in your company. While this may seem obvious, it is still worth reinforcing. Having your warehouse staff do the work encourages pride-in-work, resulting in greater inventory accuracy.
- Do you have “buy-in” from those who will be responsible for performing and managing your cycle-count program? People resist change. Going from annual physical inventory counts to a cycle-count program is a BIG change. The spotlight will be on those who will be doing the work. Be supportive and quick to respond to questions and concerns, and tweak the program as necessary, in response to constructive feedback.
- How will you train those responsible for cycle-counting? As with any other process in your company that is to be repeated, your cycle-count process should be documented with step-by-step instructions, available to anyone. Training should follow these instructions.
- How will you document that those responsible for cycle-counting have been properly trained? In addition to having well-documented step-by-step instructions, you ought to have a test, if just to ensure that those who have been trained actually learned something.
- How much time per week do you intend to have your employees spend on cycle-counting? Set reasonable expectations. After determining average cycle-count batch size (i.e., number of items or locations per batch), perform sample batches. Also, adjust batch size to accommodate exceptionally difficult-to-count items. (Difficult-to-count items might be items that have to be moved by forklift to count, or linear items that have to be passed through a length meter, such as open-package hose or tubing.)
- How will you determine which items are to be counted in each cycle-count batch? A common practice with cycle-counting is to count your most active items four or more times per year, and all items at least twice per year. (One of the caveats of cycle-counting is that it relies on time available among your staff. That is, no employee is fully busy 100% of his/her time at work, so there is available time among your staff to count selected items more frequently during the year.
- Does your company use WMS (warehouse management system) software to control movement and storage of material in your warehouse(s)? If so, deploying a cycle-count process should be easy-peasy. If you do NOT have a WMS, see the next questions in this section. And contact these guys.
- Does your warehouse have formal bin locations? If so, are they used consistently by all warehouse workers? If not, what will you do to have all workers adhere to putting away items to their assigned locations and/or letting your ERP system know where every item is located? Accurate item/location assignments and records in your ERP system are necessary to create cycle-count batches.
- Are items put away in your warehouse based on "tribal knowledge", or are all items pre-assigned a bin/location before they arrive? If put away based on logic in each warehouse worker's head, without recording assigned bin/locations in your ERP system, defining cycle-count batches that capture all items in your warehouse may be more challenging. It is much easier to define cycle-count batches by ranges of bin/locations.
- Do you have the same part number sitting in more than one physical location in the warehouse, such as forward stock and bulk back-up stock? If so, does your ERP system know about these multiple locations for such items? If you track the location of items by lot or bin/location, this situation should not be a problem. If, however, items are stocked in multiple locations based on “tribal knowledge”, account for this when creating cycle count batches.
- How will you record when an item or bin/location has been cycle-counted? This is necessary to ensure that all items are counted the assigned number of times throughout the year.
- How will you ensure that cycle-count batches are performed on schedule? Once you start your cycle-counting program, getting behind schedule is not an option. Keeping to the plan must be a high priority for all involved, and falling behind schedule must have consequences.
- Do you control the receiving, storing and picking of items by “lot”? If so, consider lots when creating cycle-count batches.
- Will your cycle-counters have access to a counting scale? For light-weight items for which you stock quantities in the dozens or hundreds, a counting scale is indispensable for efficient, accurate cycle-counting. Get one.
A Few “Gotchas”
- Do you have “buy-in” from your internal customers, particularly those who depend on your inventory being accurate? This group might include inside sales / customer service, purchasing or outside sales. Again, people resist change. Be a good communicator to this audience as to the benefits of cycle-counting.
- Do you have “buy-in” from senior management, such as the president and CFO (or functional equivalents)? These are the people who will take the heat if your auditors are not convinced that your inventory is accurate without a wall-to-wall physical inventory count. Make sure that they fully understand your cycle-count process, including record keeping and training methods.
- Is access to your warehouse restricted to only authorized employees? (That is a nice way of asking, “Do you prevent your outside sales people from going into your warehouse and taking stuff?”) A good cycle-count program is for naught if employees can take/move/return inventoried items without formal tracking. There should never, ever again be an instance of, “Oh, I just needed to borrow this to show a customer.” (There should be a formal process for temporarily removing an item from your warehouse.)
- What process will you deploy to catch poor quality work and/or cheating? Catch and fix holes in your new process early, to avoid an audit crisis months later.
Got this far? Congratulations! Now it is time to implement cycle-counting at your company. Good luck!
About the Author
After a successful career in sales and operations management in the wholesale-distribution industry, Mark Tomalonis is now principal of WarehouseTWO, LLC. He amuses himself by writing articles, such as this one, to help wholesaler-distributors execute their operations better. Mark’s articles and tips are published in WarehouseTWO’s monthly e-newsletters. Click here to subscribe.
WarehouseTWO, LLC is an independent “inventory-sharing” service created exclusively for durable goods manufacturers and their authorized distributors, and for any group of durable goods “peer” wholesaler-distributors, such as members of a buying/marketing group or cooperative. To learn how inventory-sharing with WarehouseTWO can help your business, visit the WarehouseTWO website, or email firstname.lastname@example.org.