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Submitted by NAV Insights on 11 April 2016

Warehousing Myth: You Can Count Your Way to Accurate Inventory

Warehouse workier

One of my favorite warehousing myths is that you can count your way into accurate inventory. This implies that there was some fluke event that created the inaccurate inventory in the first place. Counting to correct the inaccurate inventory does not fix what caused the inaccuracy. If the level of accuracy is low, then there is no way that counting over and over again will fix the inaccuracy issue. My point is that random, human error does not cause a significant inventory accuracy issue. Humans make mistakes, but careful warehouse employees will not create a significant inventory accuracy issue.

If you have substandard inventory accuracy, it is rooted in bad practices and procedures. The only way you can eliminate systemic inventory issues by cycle counting is to count every item every day, and we all know that is not possible.

So, what is the point of cycle counting? The point of cycle counting is to identify inventory errors, so the root cause of the error can be found and corrected. Once you have accurate inventory (because you have corrected your process problems), you cycle count to avoid an annual physical inventory. So the goal of cycle counting is to find the systemic problems so you can fix them, which will allow you to eliminate the need for annual physical inventories.

How does cycle counting help you identify process and procedural problems? Well, that is a great question. It helps because it narrows down the window of time between when the error was created and when it was found. In doing so, you achieve the following benefits:

  • Hopefully, only one inaccuracy event has occurred, which makes it easier to identify the root cause. Let’s say my processes generate three errors a day. The probability that I have multiple errors on a single item are high. If I am supposed to have 50,000 of an item, and I have 35000, I start looking for a 15,000-piece error. I can’t find one because I have three errors of 5,000 each (or any combination that totals 15,000).
  • Our minds remember more things in a shorter period of time. We can remember events if we are checking on them within a shorter period of time.
  • There are fewer transactions to evaluate in a shorter period of time, so the time it takes to find the one that is wrong is shorter.
  • By finding individual errors, you can assign reason codes to each error and do a Pareto Analysis to identify the 80/20 rule of the most frequent/important root causes.

When cycle counting to fix inventory inaccuracy, the counting is the simplest part of the processing. The most important part is researching to find the reason the error occurred so it can be dealt with. After researching and finding the root cause, you record the correction and log a reason code.

Be smart, don’t chase and try to solve every problem as you identify it. As with any good problem solving, you want to find the most important issues and fix them first. Allow the data to accumulate, and once you have enough data, do your analysis and resolve the most frequently occurring errors first. Maybe you will be lucky and there is will be only one root cause. My guess is, it will take more than one round of problem solving, but imagine how wonderful life will be when you don’t have to shut down once a year to do that physical inventory.

So the goal of cycle counting is not counting your way to accurate inventory. It is identifying the causes of the incorrect inventory, which will create accurate inventory. You will have more accurate inventory if you cycle count, but only if you do so for the right reason.

Need help getting your warehousing processes in order? Talk to the experts at ArcherPoint.

Read more blogs on this topic:

Warehousing Myth: Accuracy Takes Too Much Time
Want a sure-fire way to help your warehouse run smoothly and get your inventory counts right? Take the time to record where things are.

How to Cycle Count in Microsoft Dynamics NAV, Part 1
In this 2-part blog series, Rick Dill explains cycle counting and how to use Microsoft Dynamics NAV to perform cycle counts using two methods.

How to Cycle Count in Microsoft Dynamics NAV, Part 2: Counting by Warehouse Location
In this second of a two-part series, Rick Dill explains how to use Microsoft Dynamics NAV to perform cycle counts using the count by warehouse location.

Setting Up Cycle Counting with Warehouse Management in Dynamics NAV
This blog describes the process for setting up cycle counting in Microsoft Dynamics NAV’s Warehouse Management feature.