Posts Tagged ‘Time And Money’

Inventory management – to gain control of inventory cycle counting

Feb 3, 2010 Inventory Management software

If you make or sell physical products, inventory control is an essential element for success. Certainly I will not lose anything by having to grow legs and walk out the door. You do not want things to get damaged, they pass their expiry date, or become obsolete while sitting around waiting to be sold. You do not want to have too many or too few items on hand. So actively manage their inventory, implement policies, procedures and physical controls adequate to ensure that its inventory management system supports the objectives of the organization.

One aspect of inventory management that organizations often struggle with is to ensure the accuracy of the inventory reported by the inventory management system. The accuracy of the inventory means that the amount and location of inventory items reported by the inventory management system matches the actual physical quantity and location of articles. If your system reports that you have 100 units in stock, but actually have 90 or 120 units by having them physically, your inventory records are not accurate. If your system reports 100 units in one place, but are physically in the location B, again, your inventory records are not accurate.

Why is the inventory record accuracy significantly, and why should you invest time and money to ensure an accurate record? There are three primary and very good reasons.

1) It will cost less to maintain accurate records of what it does to operate under their current conditions.

2) Your customer service will improve.

3) You'll increase revenue through customer service.

It will cost less to maintain accurate records. The program of registration accuracy, cycle counting becomes a part of the job. Just as order processing, picking and packing, and transportation are part of the task, with the cycle becomes part of the job. It is not a separate or additional spending, despite the initial ramp training and require a small investment.

Your customer service will improve. When you tell a client that has units in stock and can ship immediately, you can be sure you have units in stock and can ship immediately. No more broken promises, frustration, or stir angry because inventory record errors. Your employee satisfaction will also increase because of this.

You'll increase revenue through customer service. Keeping commitments is a key element of this quality customer service. When promises because you know what you have and where it is, customers will notice. You will choose on competition that may not make and keep promises.

Also make many decisions on the basis of reported inventory balances. You make daily decisions to order different items, including raw materials, purchased components, and merchandise for resale. You do the production planning and programming decisions and shipping costs and delivery decisions based on their type of business. And it makes long-range strategic decisions based on inventory balances and trends. You want these decisions to rely on inventory records that you can not depend on and not trust? I think not.

So what is the account cycle, and how to start? First and foremost, remember that the purpose of cycle counting is to discover the origins and reasons for the errors of inventory, then eliminate or correct these causes so that does not happen again. Cycle counting is not, as some seem to think, only counting items more often and updating of the records that I have told. That is extra work that accomplishes nothing. Finding causes of errors, and eliminate the cause, that is what it is.The main steps in the cycle counting process are:

1) Finding the causes of errors in inventory records.

2) Correct or eliminate causes of errors that does not happen again.

3) Adjusting inventory records.

Steps 1 and 2 include the more detailed process steps, of course, but remember that these three, and their correct order and you will be well ahead of your competition.

One of the basic concepts of cycle counting and inventory management in general, is that not all inventory items are of equal importance and not all require the same level of control. So what we do is sort all the different inventory items as A, B, C or articles. A-class issues are most important or the need for most controls in place. C-class issues are less important, at least on an every unit and requires the least amount of control. B-class elements fall somewhere in the middle. If this sounds a bit confusing, it is, but does not lose any sleep over it, and you'll see why. A-class items are items that are expensive, have long acquisition times, or are difficult to obtain. C-class items are inexpensive and readily available. If you are building houses, items may be the lamps for the dining room, and elements of C may be the nails used to put under the house together. If you miss a lamp or two sides, which is a big problem. If you lose a few hundred nails, no one will notice.

To begin the classification of all our items as A, B or C, usually begin with the classification by value. This is because it is often a large percentage of the total asset value comes from only a few inventory items. You may know it as the 80/20 rule or Pareto's Law. We use this as an initial basis for the classification of our products.

20% of inventory items = 80% of the value of inventory = A classification

30% of inventory items = 15% of inventory value rating of B =

50% of inventory items = 5% of the value of inventory classification C =

Or, if we have 10 different inventory items with a total asset value of $ 10,000, two of the items will cost $ 8,000. Then three of the items will cost $ 1,500 and the other five items will be worth only $ 500. You can see from this example that these two items, probably justify a higher level of control of the five items with only $ 500 total value. To be clear, we are talking about different inventory items, not the number of units of each item. The number of units of each different item will be used in the actual calculations used to classify the items, but we're trying to convey the concept of how to classify the elements of value. So if you have that concept down, let's jump in the calculations of how to determine the classification of inventory items.

Here are the steps we are taking with the calculations:

1) Determine the annual usage for each item

2) Determine the annual usage in dollars for each item

3) Rank the items in descending order of value

4) Calculate the accumulated value,% cumulative value, and% cumulative items

5) Sort the points as A, B or C

The annual use for each element must be the annual amount needed. You may find that the amount of actual sales demand (the amount the customer wants, not what's actually given) or the amount used in the manufacture or assembly of other items. Depending on the systems they have in place, this may or may not be an easy number to determine.The annual usage in dollars is more than the annual use, which we just calculated, multiplied by the unit cost of the item.

Inventory item # 1:

Annual usage = 500 units

cost per unit = $ 1.00 per unit

annual dollar usage = 500 x $ 1.00 = $ 500

To sort items in descending order of value, the list of items up and down the highest annual usage in dollars for the lowest annual usage in dollars. The next step is a little harder, but not much. The cumulative value of all inventory is the total consumption per year of all inventory items from the list. The cumulative value of each element is the value of the item, plus all other items listed above. So the equity in the first element is only the use of dollars on that topic. The total value of the second item on the list is the value of the first item, plus the value of the second issue.

Inventory item 8, the annual use of $ 's = $ 10,500

Inventory item 23, the annual use $ 's = $ 8,700

Inventory item 17, the annual use $ 's = $ 6,200
and so on,

1 item from inventory, the annual use $ 's = $ 500

After sorting all items worth of inventory, take 20% of the articles than 80% of total value, and make the A items. Take the next 30% of the articles or 15% of value, and that these elements of B. The rest will be of type C. This is just the starting point, or an easy guide to get started. You can move items in a classification other than suggesting this calculation. Hard to get items are probably the items, even if its annual dollar value did not put there. Or if a particular item has a cost too high, but low power consumption, you might want to put more control on that topic.

This is all very well, you're saying to yourself, but what we do with it? Now that we have all our items classified as A, B or C, what do we do? One thing is to establish levels of physical and procedural control over the elements. Maybe you want to put an item in a location with more physical controls (ie, locks), or require different documents to be filled by items A and B. With items C, which often need very few physical controls, and little way of role requirements. Remember that your nails? Just give the boxes of nails and the crew needs for the day and take it.

The other thing that the A, B, C ratings it does is determine the frequency count of each item, or how often each item will be counted. It's called cycle counting, since it has different elements in a recurring pattern based on the A, B, C classification. You have to count every item on the inventory and compare the physical count with the number of records reported to see if there are any errors. If no error, proceed to the next point. If an error occurs, the investigation of the cause, implement policies and procedures to eliminate the cause so that does not happen again, and then correct the records reported to reflect the physical count.

The usual pattern, or frequency, for counting the articles is:

A items – 12 times a year (once a month)

Elements B – 4 times a year (once a quarter)

Items C – 1 time per year

Depending on the number of different inventory items you have, this could be a lot of work. However, less work, less harmful, and provides better results than a full physical inventory annually.

The frequency of sample products that are counted once a month, items B once every three months and C items once a year. But here's the thing, that does not mean to set aside one day a month to count all items in a. The idea is that you have some items every day. Yes, that is to take a physical inventory count of some inventory items differently every day. There are several ways to go about it, but a way to start is to set a timetable.Of course, if only 10 different items, as in the first instance, it is fairly easy. But most companies have many more than ten different elements. You may have hundreds, thousands, tens of thousands or more.

Say we have 1000 different items. If they fall perfectly in line with the 80/20 rule, will have articles 200 A, 300 points B, C and 500 articles. If you tell your items once a month, or 12 times a year, or 200 points x 12 = 2,400 positions. That means that in the course of the year, you have to make separate charges for its 2400 A-class issues. He says he works 240 days per year, which means you have to have 10 different items to class every day. Then you have all the points B and C, and one can see that you have your work for you. But again, this is better than not doing it this way.

And one must always remember, the point is not only to count items and update the records with what you have told. The key point is to discover the causes of the errors and fix them so that does not happen again. If you fix all the causes of the errors, you will have no error. So when you count the inventory, the records that match the account, and finds it. Then you can trust records, trust them, and reap the benefits of having accurate records. So to get started!

Tags: , , , , , , , , , , , , , , , , , , , , , ,