Cycle counting

- I spent 23 years in semiconductor manufacturing. The one activity I dreaded the most was the annual inventory audit. At the start of my career as a first-line supervisor, I saw no value in all the effort required for an audit. Later, as a factory manager, I began to understand how important these audits were in making sure our inventory records were adequate. The objective of an annual inventory audit is to provide the dollar value of the inventory at the end of the year, which means that every item in inventory is counted. Even if you only do a sample count, your audit is very disruptive. Supervisors must make time away from their normal activities to help account for missing inventory. If inventory cannot be found, its value is reduced to $0. So lots of energy is spent in the search. The audit process will certainly tell you if you have missing inventory, but unfortunately it does not allow time to discover why the inventory cannot be found or to solve any related problems. That's what cycle counting is all about, finding errors and fixing them. Unlike the annual audit, cycle counting is done throughout the year. With cycle counting, you select a representative sample of your total inventory and continuously count that sample, solving problems and correcting errors throughout the year. For example, if your count of repair parts reveals an incorrect inventory, you will immediately correct the accounting records. You won't wait until the end-of-the-year audit. You also will investigate why the account was wrong and discover that some mechanics are not updating the log book each time they remove a part from storage. You then put a written procedure in place to prevent this error from happening in the future. Thus, the error is found, and the cause of the error is eliminated. This approach aligns well with a continuous improvement philosophy. It's very important that the items you select for cycle counting represent your entire inventory. You must include some expensive items and some less expensive items, some with long production times and some with shorter times, some with high sales volume and some that are slow sellers. You can categorize your inventory in several ways for cycle counting. First, some companies use a geographical approach, dividing their worldwide inventory into different regions based on their customer markets. Second, you can organize your inventory into product families. In the computer chip industry, for example, all memory products are grouped into one family. A third approach is to just randomly select the items, but remember that it cannot be totally random. You must randomly select from each group, like expensive items and slow sellers. You also must recognize that when you first implement cycle counting, it will be a very slow process. Remember, you are counting the inventory so that you can find and fix problems. For example, suppose you select 100 items for cycle counting this year with a goal of completing 10 items per month. Because you must find and fix any errors, that first set of 10 items might take you two months or longer. You must be patient as you work through those initial issues. The reward for your patience is that the process usually goes much faster as you progress through your list of 100 items. Problems found and fixed early will often improve standard processes, so you'll find fewer and fewer errors along the way. You should finish this process for your entire list before returning to any item for a second cycle count. This ensures that, at the end of your cycle, you have completely looked at a representative sample of your inventory. It's worth your time to take a quick look at your company's inventory control strategy. Do you have a method to continuously find and fix your inventory audit errors?