cycle counting – the secret to inventory accuracy bob collins, cfpim, cirm ssi north america...
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Cycle Counting – the Secret to Cycle Counting – the Secret to Inventory AccuracyInventory Accuracy
Bob Collins, CFPIM, CIRMBob Collins, CFPIM, CIRMSSI North AmericaSSI North America
Chicago, ILChicago, ILAPICS International PresidentAPICS International President
Agenda
• Inventory Accuracy
• Periodic Physical Inventory
• Cycle Counting
• Cycle Counting in Oracle
• How to get started!
Sound familiar?
• Can’t find parts your system says you have?
• Expediting too many items?
• Wasting time looking for parts?
• Holding excess inventory “just in case?”
Types of Transactions
– Receiving– Put away– Transfer from one
location to another– Material issue– Extra issue of
material– Backflushing
– Shipments– Removal to QA– Return from QA– Completions– “Loans” to Sales,
Engineering, R&D etc.
True Cost of “missing” parts
• Sam loses $100 of inventory/month
• Lost material must be replaced with profit dollars
• Distributor w/ 6% profit
• $100 / .06 = $1666.67
• Must sell extra $1667/month to replace $100 of lost inventory!
Other costs
• Wasted time looking for parts
• Delayed customer orders
• Wasted time in production
• Excessive expediting costs
• Excessive inventory carrying costs
• $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$!
Two methods of “keeping inventory accurate”
• Periodic physical inventory count
• Cycle count program
Periodic PhysicalInventory Count
• Periodic physical count of inventory– Annually– Quarterly– Monthly
• Expensive• Shut down production/shipping –
sometimes for days• Unidentified or misidentified material
Periodic PhysicalInventory Count
• Inexperienced, reluctant counters
• Temptation to cut corners
• Missing documents
• Count, recount, audit counts
• Cannot track down causes of errors
• Often introduces more errors than it fixes
Accounting vs Manufacturing
• Physical inventory counts often get close to actual dollar value of inventory (what accountants are looking for)
• Individual item accuracy abysmal (What manufacturing is looking for)– Too many item A, Not enough item B,
Dollars even out, but accuracy suffers
(If you must) Tips to Improve Physical Inventory Counts
• Set date early – time for prep
• Determine counting method– Bar code– Count cards– Count Sheets
• Determine who will count – train!
• Map of facility
(If you must) Tips to Improve Physical Inventory Counts
• Clean up first
• Reduce inventory as low as you can– Ship what you can– Delay incoming materials
• No receiving or shipping during count
• Keep supplies on hand (Dots!)
(If you must) Tips to Improve Physical Inventory Counts
• Pre-count (and audit) surplus supplies and slow moving items
• Audit while your people are still counting
• Don’t move misplaced material during count (note and move later)
• Oracle Physical Inventory can help!
Cycle Counting– APICS Dictionary
• Inventory counted on cyclical schedule
• Count on regular, defined basis
• Most effective - counting a certain number of items daily w/prescribed frequency for each item
Cycle Counting Cycle
Continual improvement
Find error
Research error
Identify cause of error
Eliminate cause of error
Cause Report
Cycle Count Cause ReportDate ___________________
By: ____________________
Date
No of items
counted
Number with
varianceOutside
Tolerence
% with signficant
error LocationMissing
docsScale eroor Lagtime
Wrong identity Other
3-Mar 120 20 10 8.33% 2 1 3 1 2 14-Mar 110 12 6 5.45% 1 2 1 25-Mar 115 30 4 3.48% 1 2 16-Mar 125 21 12 9.60% 2 1 8 17-Mar 120 15 6 5.00% 1 2 1 1 1
Totals 590 98 38 6 7 12 5 6 2% 17% 6% 16% 18% 32% 13% 16% 5%
Common Causes for Errors
• counting procedure/equipment• untrained personnel• carelessness• poor forms design• poor document control• inventory adjustments• lack of transaction discipline• midnight requisitions
Deciding What to Count
• ABC analysis
• Location counting
• Negative on-hand items
• When order placed
• When order received
• Today’s problems
• Control Group
Deciding How Often to Count
• ABC
• After specified number of transactions
• What’s possible with staffing level
Oracle Cycle Counting Set Up
1. Define ABC classes
2. If using ABC, compile an ABC analysis and assign your compiled items' ABC classes
Oracle Cycle Counting Set Up
3. Define a cycle count for the organization or subinventory level
– Enter control and scope information– Enter autoschedule information – Define adjustments and ABC information – Enter ABC classes to include in your
cycle count – Define cycle count items
Oracle Cycle Counting Set Up
4. Define cycle count classes 5. Define cycle count items 6. Automatically schedule item counts
using ABC count frequencies 7. Manually schedule counts for the
following inventory control details – items, or specific revisions, lots – subinventories or specific locators
Oracle Cycle Counting Process
1. Generate daily, weekly, or period count requests and lists based on your schedule Enter counts
2. Count items generated3. Approve, reject, or request
recounts for cycle count adjustments based on approval tolerances
Don’t Forget the Cycle!
Continual improvement
Find error
Research error
Identify cause of error
Eliminate cause of error
Step 1 – Controlled Test
1. Pick 100 representative parts2. Divide into 25/day – Mon thru Thur3. Friday for clean up4. Begin with accurate count5. Note and investigate variances
each day6. Keep track of daily accuracy
percentage (spreadsheet)
Step 1 – Controlled Test
6. Cycle Counter uses checklist to investigate possible root causes
7. Oracle Transaction Summaries report will show transactions in system (go back one week)
8. After finding root cause, correct inventory record (spreadsheet)
Step 1 – Controlled Test
9. Record of cause, who will fix and when
10. Keep checking until you’ve attained 100% accuracy for two or three weeks (Predictable results)
11. If time available, also check negative on-hand items
Results of Step 1
• You have begun to establish the discipline necessary to maintain an accurate inventory
• You have identified and corrected most of the errors that are causing inaccurate inventories
Step 2 – An Expanded Test
1. Expand to a larger number of items (600 to 700?)
2. Use ABC categories– A – count bimonthly– B – count monthly– C – count quarterly
3. Keep inventory accuracy and cause records (spreadsheets)
Step 2 – An Expanded Test
4. Example formula for counts– Counting 4 days/week– A’s – every 2 weeks (once every 8 days)
• 100 A items = 100/8 = 13 items/day
– B’s – monthly (once every 16 days)• 200 B items = 200/16 = 13 items/day
– C’s – quarterly (once every 52 days)• 400 C Items = 400/52 = 8 items day
Step 2 – An Expanded Test
All 600 items can be divided into 34 items/day
In a quarter, all A items will have been counted 6 times, B items 3 times, C items once.
5. Continue until you’ve attained 100% accuracy for two or three weeks (Predictable results)
Step 3 – Full Cycle Counts
• Once the root causes are identified and are being dealt with for the items in the Expanded Test, and the Cycle Counting procedures have been reviewed and are in place, the Cycle Counting program should be expanded to include all of the inventory items.
97% + Accuracy
• You can achieve 97%+ accuracy
• If accuracy level maintained long enough – you may be able to eliminate periodic physical inventory counts
Questions?
Bob Collins, CFPIM, CIRMBob Collins, CFPIM, CIRMSSI North AmericaSSI North America
[email protected]@us.ssiworldwide.com