define the difference between cycle counting and physical
inventory?
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Answer Posted / john gellert
A physical inventory is done once a year to check and
correct the accuracy of your inventory. Often used by
banks to audit their investment into your company or to
simply reset your stock levels so that inventory is correct
and customer service is not impacted by wrong information.
A cycle counts purpose is to find systemic problems, it is
NOT intended to ensure your inventory accuracy or fix your
on hand quantities. Those are mere bi-products of a cycle
count.
All inventories will have different classification of
products called A,B,C,D classification. These classes are
defined by the criticalness and movement of a product where
an A item is high dollar / high mover, and a D item is
something that is identified by the dust it has on the
shelf.
A cycle count filters through your inventory over a course
of a year. A company may choose to count all their A items
4 times a year, B items 3 times a year, C items twice, and
D once.
The theory behind the Cycle Count is to monitor your
systems (processes and proceedures). Are you pulling parts
correctly, are they marked correctly, is paperwork being
processed, is the receiving dept. counting items on the
inbound, are product bar coded correctly, is a bill of
material correct, theft, and a hundred other things that
could possibly cause your inventory to go out of balance.
A cycle count finds those flaws and offers you a chance to
correct them.
The reason an A item is counted more often than a D is not
because of Value $$, yet because it is subjected to your
processes a lot more. Assuming you have a very solid
system/process, you constantly test it (via Cycle Counts),
and you apply that same exact process to an A item as you
do a D, there is a very high probablility that your
inventory accuracy on the D item will be as accurate as
your A, even though you only counted it once in a years
span.
Lastly, a good cycle count has a Hit of Miss criteria.
There are always going to be acceptable levels of
tolerance. Simply put, do we really care if we are off by
1 or 2 pcs. of a $0.01 part that we stock THOUSANDS of?
NO! So we identify those tolerances. If your counts fall
with in those tolerances, you have a HIT (good thing). IF
they fall outside of the tolerance you have a MISS (bad
thing).
Misses are investigated. Problems researched and solutions
secured. THEN as a final measure you would schedule the
MISS for a future cycle count, say in a couple of weeks to
ensure the fix worked, the process is functioning and the
system is good.
Hope this helps.
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