The Importance of Inventory Management - Cycle Counting

Cyclical inventory management, or cycle counting, divides inventory taking and maintenance into several stages. Cycle counting streamlines resource efficiency and minimizes the risk of errors, by distributing the inventory management workload and improving the accuracy and precision of inventory data.With cycle counting, you can:

• identify sources of error
• correct your processes
• quickly identify transaction-related issues
• centralize inventory data
• easily make adjustments
• clearly record inventory movement
• improve operational profitability
• reduce storage costs

Inventory management to manage your business

When adopting the Lean methodology, it's important to maintain accurate and precise inventory to better respond to customer needs. This approach demands higher standards for successful inventory management, which means you can achieve maximum accuracy without straining your resources and their supporting processes.

There are many methodologies and technologies currently available on the market. In recent years, cyclical inventory counting has been increasingly popular with high inventory and high transaction volume businesses. Like any methodology, it must be adapted to the situation to meet specific needs.

Throughout my career, I've seen straightforward improvements to inventory management successfully resolve 98% of accuracy problems.

Inventory and daily management

Many professionals have discovered Excel's limited capacity for handling increased amounts of data. Generating accurate inventory reports shouldn't get in the way of successful day-to-day business operations. Once you understand the value of orderly and accurate inventory, you know that investing in inventory management is a major step towards substantial savings and error reduction.

Cycle Counting Step-by-Step

There are 4 key steps to implementing inventory management with cycle counting.

• Item Classification

The first step is to divide the inventory into three categories by certain characteristics. We call this the ABC classification. The most commonly used characteristic for ABC is the annual usage value of the items, which is calculated in dollars per year. Every letter in this methodology identifies a value category, along with its associated risk of error. For instance, an item worth $1,000 and subject to multiple annual transactions will carry a higher risk of error than an item of similar value with only one annual transaction

• Frequency of counts

Guess what; categories with the highest risk of error are counted more often than categories with fewer errors. Normally, the letter A is assigned to items with the highest risk of error. This means Category 1 items are counted more frequently than Category B and C items. When first implementing cycle counting, the frequency is targeted higher to insure the process is properly set up and the inventory accuracy rate has improved.

• Distribute each count

Counts must be allocated by frequency to fit smoothly into day-to-day operations and set many items for handling within a given timeframe, either per day or per week

• Maintain the count

This is the most important step. After the counting process is embedded in your operations and the resources are aware of their duties, you should continue to monitor inventory accuracy. Make sure each count is performed within the pre-determined schedule while recording and correcting any errors. This is also when you compile all the data and analyze performance indicators.

Performance Indicators

Every successful implementation requires its own set of performance indicators to gauge the impact on the company's operations as well as related benefits.For cyclical inventory management, inventory accuracy is the most popular indicator. This is expressed as a percentage and reflects the ratio of accurate data to total item data, either in value or per unit. The 98% threshold is generally the target when adopting the cycle count methodology.

Better equipped for accurate counting

It doesn't matter which business management methodology or software supports your processes - SCM (Supply chain management), Lean, APS (Advanced planning system), ERP (Enterprise resource planning), or Integrated Management Software - cycle counting has the potential to effectively pinpoint problem sources while reducing the costs of error correction.As the saying goes, an ounce of prevention is worth a pound of cure. Cycle counting is exactly the ounce of prevention you want AND needs for your business!When it's time to set up inventory management, there are several options: implementing new technology is a big commitment, but it's crucial. You can optimize team efficiency while knowing exactly where and in what quantity and article are located.With integrated inventory management like Dynamics 365 Business Central, you can quickly and efficiently generate reports, track inventory and pinpoint your inventory accuracy indicator. Dynamics 365 seamlessly incorporates this type of inventory management. Software applications can improve inventory management with concrete results in the first few days after implementation.

The right inventory management solutions

In the end, a wide range of solutions is available to streamline your inventory, while considering your specific situation and needs. We can guide you toward making the right choice for your business. Find out more about our specific inventory management solutions.Are you considering how to streamline your inventory management? Please contact us for more about our solutions. We can guide you in your business transformation!