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Three Approaches to Cycle Counting
Cycle counting is one of the most effective ways to keep tight control over your inventory, but it can be intimidating if you approach it without a full understanding of the issues involved. Distribution Digest newsletter provides the following starting points, suggested by Jon Schreibfeder, president of Effective Inventory Management Inc:

The first step is to familiarize yourself with the three basic strategies for cycle counting. Your method can be geographic, rank-based, or by random selection.

If you implement the geographic method, you will count all of the items in your warehouse an equal number of times each year. A typical program will count all products three or four times a year. This method is great for finding misplaced material, but is the most time-consuming of the three approaches.

The rank-based method counts those items with more activity more often. This makes sense because every time a warehouse worker picks or puts away a product, there is another opportunity for a mistake to occur. If you think about it, your dead stock and slow-moving inventory items probably have the most accurate inventory counts. A typical program will count the 10% to 13% of your products that represent 80% of activity at least four times a year, moderate-moving products twice a year, and slow-moving products once a year. This method usually results in the most accurate on-hand quantities, often with the least effort.

The random selection method chooses items to be counted at random. It is appropriate if you suspect theft or other purposeful mishandling of inventory and you do not want employees to know in advance what items will be counted on a certain day.

In any approach, in addition to the items selected to be counted on a specific day, you should count:

* Products with an unexpected stock-out. These are items where the records show there is product available but none can be found.

* Products with a negative on-hand quantity. In this case, the records show you are out of stock but your warehouse workers continue to fill orders for the item.

* Items that had a significant stock discrepancy seven days ago. If a cycle count for an item results in a significant difference (e.g., more than 5 percent or $50) between the actual on-hand quantity and the quantity in the records, the item should be recounted in seven days. If the count is off again, examine the transactions for the product to try to determine the reason for the discrepancy.

Malone Sales Co. LLC
1424 Easton Road
Horsham, PA 19044