How to Manage Cycle Counts Using Your ERP

Cycle counting is an inventory control process used to identify the causes of inventory errors. The next step should be to correct the most frequent problems which ought to lead to more accurate inventory records. An accurate inventory is a foundation of any ERP system. Planning and production depend on accurate inventory and, of course so does purchasing. A business using cycle counting will select a sample of items inventory regularly and count the sample. If your count agrees to the ERP Cycle Count record, pat yourself on the back. If not, investigate the cause of the difference; post the adjustment, and record the reason for the difference. Examine the leading causes of differences and change your processes to eliminate those differences.

Traditionally, the samples were chosen by dollar values of the parts. This stratification is called an ABC code. The items making up the highest 5 – 10% of inventory might be counted monthly. The 80% of items making up at the lowest 20% of the dollar value might be counted once a year.

More often today, the parts with the most frequent transactions will be counted most often – perhaps monthly. Parts that have no activity need to be tested rarely – maybe once a year or less often. Transaction frequency tiers appeal to the people in production. Dollar tiers appeal to the financial folks. A hybrid approach can be used where some high-dollar parts are added to the A tier and some medium dollar parts might be added to the B tier. Sometimes parts that are large and bulky or have long lead times might be promoted to a higher tier. We can look at transaction frequency in two ways. We can look back to actual transactions. We can also look forward using future orders and forecasts to predict transactions yet to come.

With any selection method, cycle counting is sampling. We assume that the accuracy and reasons for differences in our sample apply to the whole – every item in every location of our inventory.

When a cycle count sample is complete and we have analyzed the differences, we post any adjustments to the inventory balances in our ERP. This is a live transaction which will cause the quantity to decrease and will suggest an immediate replenishment purchase order. Our ERP can also suggest an immediate push out or cancellation of that order if we find more on hand than we thought. Some managers will post the differences to a virtual warehouse until the reason is known. This will postpone the swing but it might also delay the inevitable shortage that needs to be filled.

Your ERP will help you measure the accuracy of your inventory records. If your accuracy rate is 98% or better, you have excellent inventory management. If less, keep working on resolving the reasons for discrepancies and your accuracy rate will climb and your ERP cycle count will become better for the whole enterprise.