In the past, annual inventories were executed at the end of the year based on an organizations accounting year. While that was a method to get a good annual inventory count, it had its challenges with the following:
1) only adjusting inventory once a year
2) seasonal inventory fluctuations that may occur at the same time as the scheduled inventory
3) shutting down for an annual inventory which could disrupt customer orders and needs
4) labor constraints for a 3PL with multiple customers requiring physical inventories at the same time
A way to address the above challenges has been the movement towards cycle counts. A robust cycle count process will not only address all the above challenges, but will also meet the proper accounting procedures and the Federal Income Tax Regulations required for all inventory items being counted on an annual basis.
Cycle counts can be a complex practice. To be successful, it must have a written and well planned method that allows the count of the inventory to be done multiple times per year. Cycle counts allow you to address inventory discrepancies immediately and determine discrepancy trends. Under a cycle count environment, time is allotted to trace errors and determine root causes. Typically a specific team trained on cycle counts will administer this process. They know what to look for and where the issues may be. A focus on products with higher movement also allows you to concentrate on a process that will reduce risk of inventory issues.
Here are some considerations when developing a robust cycle count process:
- Training. Make sure there is a team trained on the Cycle Count program that your organization needs in place. This team should be dependent on the size and complexity of your inventory. Also, ensure that other associates are trained for backup due to vacations, sickness and turnover.
- Categorize Risk. Don’t assume all inventory items are equal. A risk assessment should be determined and that will help in driving the selection of the counts. Highest cost items may need to be counted more frequently. An ABC grouping should be used where items are categorized by risk. These categories are designed specific to your company.
- Set Expectations. This should include timing of the cycle count and the methodology. Scheduling cycle counts creates a routine that allows required adjustments to be completed timely so inventories continue to be relevant for customer orders.
- Analyze Discrepancies. Adjustments may be indicative of operational issues and tracking errors will help with training of associates and ensuring that the processes are gap-free. All adjustments should be categorized by some type of reason. This will show the 3PL of any trends on discrepancies. All adjustments to inventory should be reviewed by management for approval.
- Understand your Auditor’s Needs. Make sure you understand the needs of your company auditors. Those requirements will help in developing a program that will meet the operational needs and the financial needs of your organization.
At Weber, cycle counts are part of the normal daily process. All cycle count programs are customized and adhere to customer requirements and expectations. Special teams are trained to manage the cycle count process. The robust process is transparent and accuracy is high. To learn more visit www.weberlogistics.com .