What Counts When It Comes to Cycle Counting

Guest blog by Khurram Qureshi from MHI Member Company Open Sky Group

Let’s face it. You’re not in the business of counting inventory. You’re in the business of moving inventory. But counting inventory is an integral part of moving inventory, efficiently. It’s how you keep your production chugging at an optimal rate. It’s how you keep your customers satisfied by avoiding stockouts and backorders.

Now, if you’re like most supply chain companies, you have a warehouse management system (WMS) in place to help track what’s moving through your warehouse. But your WMS needs accurate input on physical inventory to make sense of what’s happening. The reason why is that your ERP system logically relies on your WMS to compile the reports upper management needs to make intelligent decisions. If garbage goes in, we all know, bad things happen up and down the supply chain.

Asking the Right Questions

So, if counting inventory is essential to success, the question remains. Who counts what and when? You can count your inventory across the entire warehouse every day – even several times a day – and be 100% sure you know what you’ve got at any given point. But, as we’ve already established, you’re not in the business of counting inventory.

The better way to count inventory is in logical cycles, based on what’s important to your bottom line. This is called cycle counting.
Cycle counting in warehouse operations is a reasonable means of ensuring that physical inventory matches the systemic (logical) inventory counts shown in your WMS. There are several ways to do this, involving:

  • • The Value of Items: It makes sense that inventory that costs more should be tracked more closely, so you may want to count these items more often in your cycle.
  • • High Consumption Items: Inventory that turns quickly should receive more attention than inventory stored in the back of the warehouse that rarely moves. The more frequently an item is purchased or sold, the more likely it is to change the figures in your WMS, creating potential ERP reporting errors.
  • • Item Location: Items stored near dock doors are usually placed there for a reason. These are typically high-priority items. You don’t want to be caught short of inventory in these areas. As well, temperature-controlled zones deserve more attention, as the cost of storing these items is higher than in other areas of the warehouse and, in the case of medicines, expiration dates are critical to maintaining customer satisfaction, if not the terms of your insurance policies.
  • • Available Personnel: Many companies have designated inventory management teams that take responsibility for inventory counts. Others delegate the duty ad hoc, depending on shifts, workstations in the warehouse, or employee pay grades. Again, it bears repeating, you’re not in the business of counting inventory, so keeping good workers on task is essential to directing staff. Take care as you tailor your job descriptions to fit the needs of your operation. Having a designated inventory auditor may help to elevate the accuracy of your counts while highlighting the importance of the function within your organization.

As you can see, the variables involved in putting a reliable cycle count in place can be complicated. However, the better your upfront situational analysis, the more reliable your ultimate inventory decisions will be.

Incorporating and Implementing a Reasonable Process

To correctly incorporate and implement cycle counting at your facility, examine your inventory and decide what gets counted, using some of the suggestions offered above. You can review historical data in your system as an initial benchmark. Consider all the locations in your warehouse and the typical traffic each area receives. Place this beside the skillsets of your workforce and start making priorities.

An ABC method is a good way to structure cycle counts. For example, assign the most important inventory in your warehouse to column A. These items might be counted every week. Count them by pallet, case, or item. You decide. But these will be your high-priority items.

Those items of medium importance can then be segmented into column B. These might be counted once a month. That leaves your most stable inventory for column C, where a cycle count might only be needed once a quarter.

By cycle counting in this way, you can closely monitor any differences between your physical and systemic WMS inventory numbers and rest assured management is getting the accurate information it needs to make the best business decisions.

Why Cycle Counting Pays

An effective cycle counting system will give you confidence going forward that you won’t run into production bottlenecks or hurt customer satisfaction due to excessive backorders. Your steady attention to the situation will keep you from running a frantic, end-of-the-year inventory audit and communicate to your people the importance of running a tight ship. But perhaps the most valuable benefit of effective cycle counting comes from the fact that you can now get more out of your WMS, leading to quality decisions that improve your operations.
Accurate inventory counts lead to better-directed work across your warehouse. Identifying where your inventory gaps lie against the WMS rules you set in place to maintain operating strategies will keep your strategies on course.

With this information, you can now tweak certain strategies, such as rearranging items in a location to improve pick rates, put-away logic, or worker productivity. Prime real estate will receive the right level of staffing necessary to maintain peak efficiency in any season. A simple inventory slotting change can improve throughput significantly, where it may not have been recognized before the implementation of cycle counting.

With cycle counting, your WMS can become the responsive tool you need to enhance your operations, earn growing levels of customer loyalty, and compete at the highest levels.