If overhauling an inventory system is a complex process, implementing cycle counting is even more nuanced. While you will most likely need to employ a multi-pronged solution that includes your auditor, banker and team, here are some tips to get you started.
Define and Map Your Work Processes
Work with your team to gain a comprehensive understanding of all steps that affect inventory. Chart the actual workflow, and document how the processes should work – down to the individual task level for each position involved in the process. This includes purchasing, receiving, stocking, order processing, fulfillment and shipping. Steps in the workflow should include completing and processing paperwork, entering data through automated scanning techniques or manually at workstations, and performing any required monitoring checks for inventory.
Define and assign roles for the inventory staff. To preserve transparency and data integrity, have the counting staff report to the accounting department rather than the manager of the facility where the count is taking place.
Ensure Employees are Properly Trained
Communicating the reasons for the change in inventory process and your expectations for results is vital. Ensuring your employees are properly trained will help them gain a solid understanding of the workflow and how one process affects another. Set up training sessions for your team to review inventory processes and individual responsibilities.
Consider customizing your training so new employees receive more extensive training while more experienced employees receive periodic refresher courses as processes change. Test your employees on their knowledge of and ability to perform expected tasks, and provide constructive guidance for correcting errors.
Ensure Your Software Capabilities
Software should take a snapshot of inventory at the start of a cycle count and then allow adjustments based on what is found in the physical count. Tracking, accumulating and accounting for these adjustments is essential.
Define the Cycle and Segregate Counting
Begin cycle counting small parts of your inventory daily while doing one last physical inventory; then compare physical counts against the levels shown in your inventory management system.
Start with control group cycle counting. Select a control group made up of a cross-section sample of inventory. Then count the control group and compare it against your inventory management system data. Rotate your control groups according to an established schedule to ensure that all inventory in the warehouse is counted at least annually.
After you’ve implemented control group cycle counting, identified any sources of inventory accuracy problems and put the necessary solutions in place, begin implementing random cycle counting. Take a random mathematical sampling of your inventory to assess conformance against inventory accuracy expectations and then infer accuracy relative to your entire inventory.
Once you have those processes in place, you can choose how to cycle your counting, depending on needs. For example, you could count a percentage of your fastest moving stock each day, while counting other items less frequently. You might also choose to count all items of one type, regardless of where they are in your facility, or you could count all items in one location, regardless of type.
Set Realistic Goals for Error Tolerance
Your tolerance for error may vary depending on the degree of demand for any given item. You also may want to adjust your error rates down after you’ve made progress identifying process errors and human mistakes, and corrected them. On a regular basis, identify and report inventory inaccuracies – for example, improper counting, data entry errors, or goods lost to theft, damage or disorganization. Translate what these inaccuracies mean in terms of lost profit.
Continuously Improve Your Cycle Counting Process
Continuous improvement is a must. Regularly review your operational workflows with your staff to pinpoint broken process areas and identify solutions for reducing errors. Frequent and routine assessments will allow you to incorporate enhancements or new processes as business needs change.
Try to batch together several process improvements at one time to avoid confusing employees with multiple process iterations. Then roll out the changes through formal training sessions to ensure everyone is on the same page.