Regularly cycle counting inventory brings about an increase in the operational efficieny. When you are counting something every day, every member of your team will become more aware of both physical inventory control and inventory accuracy in your system. Read more at link
In my earlier blog(s), I have explained the significance of cycle count and why it matters. I also want to emphasize that inventory count should be conducted by personnel who don’t have any direct responsibility for assets being subjected to the inventory count and therefore a trusted third party should be entrusted to perform this action such that the integrity of data can be maintained and analyzed by the business unit manager. In that capacity the company personal should not have any influence over
a) Processing and recording inventory transactions
b) Approval of inventory transactions and adjustments.
The trusted third party agents are knowledgeable about the inventory items and they are better able to detect errors and suggest corrections.
Determining inventory accuracy is a key to knowing how closely the official inventory records match the perpetual inventory levels. The perpetual inventory system allows for maintaining a continual track of inventory and helps to better manage inventory levels. This is important also because the business unit managers and material management personnel have a stronger interest in the accuracy of individual item which ties back having a dollar value that can be documented in the financial statements. Periodic inventory system adjusts for purchases and sales of inventory at the end of the reporting period based on a physical count of inventory on hand. Since capital is heavily invested in inventory, inaccuracy may cause stock-outs of inventory and require a business to carry higher inventory levels than necessary, which requires more capital. Some leading causes of inaccuracy include:
1. Inaccurate analysis of inventory issues
2. Shop floor discipline
3. Ineffective MRP set-up
This is where cycle count comes in and helps to discovers errors in the inventory levels. The counters inspect the inventory at an established cadence and determining accuracy by:
1. Spreading out the counting workload
2. Determining the current state of inventory
3. Finding and correcting inventory record errors
4. Facilitating a process improvement through root cause analysis
5. Determining reduction of inventory levels
6. Continuously measuring accuracy
The business unit managers play a significant role in determining the number of counts per period and the timing of the counts by working with an inventory audit firm to schedule for cycle counts
Do you know if your inventory has been subjected to some unexplained loss? Are you overstocking? Do you have the most critical supplies well stocked? The answers to all these questions can be addressed by having a physical count of the inventory. The physical count of the inventory is a key to any business unit that uses this information for decision making and ensuring that financial statements reflect that accuracy of the inventory records. It is advisable to have complete physical inventory counted on an established cadence which can be bi-weekly, end of the month, quarter or annually to be aligned with the financial reporting period. It is further recommended that appropriate controls be in place to protect and safe guard against misuse of assets by providing for effective controls such as segregation of duties in the inventory process. Cycle count is essential in this process and is pivotal to ensuring inventory accuracy. It is generally done at such times labeled as “off hours” when the stock is not moving at an aggressive pace, typically before start of business day. There are numerous ways to do this. The most predominant method is to classify as wall to wall where the stock is divided into distinct locations and the technician starts at one location and works his/her way until the full floor (wall to wall) has been counted. Once the count has been completed, review the count vis-à-vis the earlier records to determine variance and arrive at a root-cause. Doing this provides timely and accurate feedback to the business unit to implement corrective action(s) based on the identified root-cause which can be either loss, incorrect data, etc. This process also provides a good mechanism for the business unit to educate its employees as it relates to the inventory process.