Cycle Counting

@Vise Business ConsultancyAuthor: Hans Groen

Need for counting inventory

• Dislocated parts• Financial risks• Declined reliability of your Supply chain• Time waste in searching for stock• Excessive stock levels

Risk during transactions

• Receiving• Put away• Location transfer• Backflushing• QA transactions• Internal ‘loans’• Unreliable scanning• behaviour staff

Cost of lost inventory

• Loss of actual booked value• Replacement of value + margin supplier• Required sale of both newly purchased

as lost inventory• Loss of reliability = ‘No’ sell or downtime

in factory • Additional cost in supply chain• Cost are mostly hidden but high

Types of counting

• Interval counting– End of year count.

• Unreliable, long interval, no active control

• Requires mostly shutdowns.• Costly

• Cycle counting– Geographical– Ranking.

• Multi moment method

Geographic counting

• Map your warehouse and all racks• Determine max period to cover entire

DC.• Divide by sequential regions in your DC• Count Region A up to Region Z.• Monitor all variances and explain them• Take corrective actions on variances• Allows to count all at least 4 times a year

Sampe geographic method

day start # end # day start # end # day start # end # day start # end #1 0 16 64 1009 1024 127 2017 2032 190 3025 30402 17 32 65 1025 1040 128 2033 2048 191 3041 30563 33 48 66 1041 1056 129 2049 2064 192 3057 30724 49 64 67 1057 1072 130 2065 2080 193 3073 30885 65 80 68 1073 1088 131 2081 2096 194 3089 31046 81 96 69 1089 1104 132 2097 2112 195 3105 31207 97 112 70 1105 1120 133 2113 2128 196 3121 31368 113 128 71 1121 1136 134 2129 2144 197 3137 31529 129 144 72 1137 1152 135 2145 2160 198 3153 3168

10 145 160 73 1153 1168 136 2161 2176 199 3169 318411 161 176 74 1169 1184 137 2177 2192 200 3185 320012 177 192 75 1185 1200 138 2193 2208 201 3201 321613 193 208 76 1201 1216 139 2209 2224 202 3217 323214 209 224 77 1217 1232 140 2225 2240 203 3233 324815 225 240 78 1233 1248 141 2241 2256 204 3249 326416 241 256 79 1249 1264 142 2257 2272 205 3265 328017 257 272 80 1265 1280 143 2273 2288 206 3281 329618 273 288 81 1281 1296 144 2289 2304 207 3297 3312

Ranking method - I

• Divide your inventory ABC method:– A: 80% value. 6 times a year– B: 15% value. 3 times a year– C: 4% value. Twice a year– D: 1% value. Once a year

Ranking method - II

• Possibility to take into account:– Loose parts or bulk– Hig volume low value– Size of articles– Warehouse or WIP stock– Manual count or scanning solutions– Regular inventory or returns

Ranking method - III

• Pro’s– Statistical reliability– accepted by Accountants– Quick method, low impact on

resources– Frequency upholds training and

awareness among staff• Con’s

– Not ideal to find lost material

Ranking method - IV

• Best time is at beginning of day / shift or at the end.

• Make sure system is updated and no ongoing transaction on area or material that is counted.

Sample Ranking method

Week #

Type article 1 2 3 4A 100 112 125 138A 101 113 126 139A 102 114 127 140A 103 115 128 141A 104 116 129 142A 105 117 130 143A 106 118 131 144A 107 119 132 145A 108 120 133 146A 109 121 134 147A 110 122 135 148A 111 123 136 149A 111 124 137 150

B 400 414 427 440B 402 415 428 441B 403 416 429 442B 404 417 430 443B 405 418 431 444B 406 419 432 445B 407 420 433 446B 408 421 434 447B 409 422 435 448B 410 423 436 449B 411 424 437 450B 412 425 438 451B 413 426 439 452

C 800 808 816 824C 801 809 817 825C 802 810 818 826C 803 811 819 827C 804 812 820 828C 805 813 821 829C 806 814 822 830C 807 815 823 831

1

Example:A articles every two weeks. 100 articlesB articles every month. 200 articlesC articles. Quarterly. 400 articles

By week, 4 days are used to count. One day is used to clean up.A: every two weeks, 8 days availabe. 100 art / 8 days = 13 pro dayB: every month. 16 days available. 200 art / 16 = 13 pro dayC: every Quarter. 52 days available. 400 arts / 52 = 8 pro day

This means 13+13+8 = 34 articles pro day

After one Quarter:A: 6 times counted = 24 times a yearB: 3 times counted = 12 times a yearC: one time counted = 4 times a year

Multi moment method - I

• Determine the required number of counts based on relative share of total inventory

• Utilisation of statistical approach– Based on required reliability– Tolerance or error level

Multi moment method - II

• Base of calculation– Determine share of each element of

total– Required reliability– Tolerance

Multi moment method - III

• Base of calculation– Nv = required number of counts– P = share of each article – Up = reliability [1,96 = 95%]– A = tolerance [1,2%]– M = 20 working days– I = inventory level

– Nv = SQR[Up]*p(100-p)/SQR(a)

Sample multi moment method

– Nv = SQR[Up]*p(100-p)/SQR(a)– 11,05=SQR[1,96]*55,34(100-55,34)/SQR(1,2%)– M[11,05] = Nv[703]/1274* 20 days

p Nv m I art # description Share required counts Nv monthly counts inventory level

1 a 55,34% 703 11,05 24.6192 b 5,23% 67 1,05 2.3283 c 0,90% 11 0,18 4004 d 1,24% 16 0,25 5515 e 11,91% 152 2,39 5.2986 f 1,99% 25 0,40 8857 g 3,26% 42 0,65 1.4508 h 0,00% 0 0,00 29 i 14,25% 182 2,86 6.340

10 j 4,32% 55 0,87 1.92111 k 0,96% 12 0,19 42712 l 0,59% 8 0,12 264

1 1.274 20 44.485

Sample RCA report

DateOwner

Date count # art counted Category # with variance # outside tolerance % with error location missed docsfalse UOM Lagtime wrong code others3-mrt 120 A 20 10 8,33% 2 1 3 1 2 14-mrt 110 B 12 6 5,45% 1 2 1 25-mrt 115 C 30 4 3,48% 1 2 16-mrt 125 A 21 12 9,60% 2 2 8 17-mrt 120 B 15 6 5,00% 1 7 1 1 1

Totalen 590 98 38 6,00 13,00 12,00 5,00 6,00 2,00 17% 6% 16% 34% 32% 13% 16% 5%

fout reden

Cycle count root cause report

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