ERP Warehouse Management: Are You Taking Cycle Counting Seriously?

Conducting a physical inventory after an ERP implementation is an unfamiliar and therefore unpleasant process. The era of taking several days to manually reconcile a physical inventory before posting financial results is gone, and the new processes, material identifications, and transaction jargon all combine to make it more difficult to communicate efficiently about inventory problems. Particularly in areas that are warehoused managed, people can’t understand why taking short cuts around the new ERP warehouse management system actually cost everyone much more time in the long term.

The established method to improve inventory control is by cycle counting. Unfortunately, many organizations do not consider inventory control to be an important core value, and as a result, even though cycle counting is performed, the benefits are forfeited. The intended purpose for cycle counting is to pick out a small, definable portion of your total inventory, count it, find discrepancies – and, most importantly, investigate and resolve the reason for the discrepancies. Unfortunately, unless inventory control is a leadership-driven expectation, most organizations use cycle counting to avoid huge surprises at quarterly physicals; they simply cycle count and post an adjustment with no corrective action investigation occurring.

This has some unfortunate and counter-productive business effects. The first is that, in an effort to avoid an unpleasant financial surprise, the surprises are simply cut into smaller weekly or daily pieces, and the total is exactly the same or greater than the periodic inventory would be. Another bad outcome is that, without investigation, weekly variation tends to increase, with unexplained losses occurring this week, and unexplained gains occurring next week, when both were both part of the same locating problem. Under this sort of philosophy, cycle counting evolves into a menial task to just get done as quickly and effortlessly as possible, and as result, the people assigned to conduct a cycle count are often not capable of investigating what is happening and recommending corrective action.

Operational Commitment

Utilizing cycle counting in ERP warehouse management in a way that drives financial control and inventory accuracy requires the commitment and comprehension of operational leadership. They are the people who must ask the right questions of the organization. “Are you conducting cycle counts?” is not the right question, for instance, because it relieves everyone of any accountability when they answer “yes” truthfully. The correct question is “What inventory control problems have you eliminated this month as a result of cycle counting?” Without operations leadership driving the required cooperation between manufacturing, supply chain, distribution, and finance, the first three groups will normally be content to shrug their shoulders and let finance worry about the inventory variances.

The subject of cycle counting warrants more consideration than it normally gets. While reduced inventory variance is almost always part of an ERP justification, ERP warehouse management software only provides tools – very good tools, in the form of transactional clarity – to improve inventory control. If there is no request to ever use the tools, then inventory remains exactly as variable as before. That’s just giving away money.

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Tom Stephenson

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Tom Stephenson

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