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Cycle count and physical inventory policies

  • 1.  Cycle count and physical inventory policies

    Posted 06-12-2018 05:30 PM
    ​I have reviewed the forums for information on cycle count policies and found various information on the cycle counting process itself in Nav but wanted to solicit some input on policies.  We are implementing Nav 18 with a target go live in the fall and we just started cycle counting in Jan of this year.  We are developing our business policy with the end goal of eliminating our annual physical inventory process.  Can anyone share their policy on what history and levels of accuracy they have required to minimize the risk of eliminating the annual physical inventory?  Who owns the counting process and auditing process for your companies? We have multiple people with different backgrounds in cycle counting so we looking for additional input into a best practice policy.  In addition what was your process for cutover of counting before, during or after the go live?

    Thanks in advance for input!

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    Shawna O'Neill [Designation]
    ERP Financial Analyst
    American Art Clay Co
    Indianapolis IN
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  • 2.  RE: Cycle count and physical inventory policies

    TOP CONTRIBUTOR
    Posted 06-13-2018 09:41 AM
    Do you use lot control or serial numbers?

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    Gregory Alford
    ERP Manager
    Tri Star Metals LLC
    Carol Stream IL
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  • 3.  RE: Cycle count and physical inventory policies

    Posted 06-13-2018 10:45 AM
    ​Yes we will on part of our products.  We will also be using bin locations.


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    Shawna O'Neill
    ERP Financial Analyst
    American Art Clay Co
    Indianapolis IN
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  • 4.  RE: Cycle count and physical inventory policies

    TOP CONTRIBUTOR
    Posted 06-14-2018 04:51 PM
    The reason I asked is because we had some issues with lot numbers that we fixed with custom code. You should test this with your implementation partner.

    Typically, cycle counts are performed based upon the value of the items being counted. My experience is that dooms you to failure. For example, screws are typically weight counted once or twice per year. However, if you run out of screws, you may not be able to complete a production order and thereby miss a ship date. Now that is probably not a good example because you can run over to the hardware store and by more screws. However, this illustrates how all items are important.

    It is better to analyze usage and turns. The items that are used or sold most frequently should be counted most frequently. Ideally, you would want to count all of your inventory once per month over the course of 20 days. In most cases that is not practical. Therefore, you want your big movers counted every month. Usually the 80/20 rule works well. 80% of your inventory movements are from 20% of your items. Those should definitely be counted monthly. The really slow movers might be counted once or twice per year. Everything else will fall somewhere in between. When you find an error, count all bins that contain that item as part of your recount process.

    Meet after each cycle count to review errors and recounts. Investigate possible causes and implement corrective actions. Chart your progress daily and display it prominently for all to see.

    At what point will you convince auditors that you no longer need a physical inventory? That is usually up to the auditors. My experience is that they will wave a physical inventory when you can prove you are above 95% accurate by bin and quantity. Of course they are going to be looking at dollars, too.


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    Gregory Alford
    ERP Manager
    Tri Star Metals LLC
    Carol Stream IL
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  • 5.  RE: Cycle count and physical inventory policies

    Posted 06-15-2018 09:22 PM
    I agree with Greg,

    Best practice is to cycle count parts based on the frequency of their use, their value and their difficulty to replace.

    Parts that have a high dollar value - probably more often.
    Parts that have a high rate of use (are constantly being used) also more often.
    Parts that are difficult to replace (ie: they have a long lead time or single source of supply) ditto.

    A few extra points.

    To have real perpetual inventory, just cycle counting isn't enough by itself. Be sure to measure how accurate your counts are (how bad the variations are) and ensure that you are working on fixing that.  Too often I see cycle counts used as a way to avoid fixing errors in other underlying settings. Inventory errors come from all kinds of sources; Units of Measure, Bills of Material, Inventory Adjustments without review, Late transaction reporting (the classic shipper/receiver who keeps packlists in their desk drawer) etc...

    Finally, consider taking low cost easily obtained parts and switching to a KanBan replenishment system. KanBan is essentially a formalized cycle count process that automatically generates a replenishment (not automatically as in with a computer, but rather with an easy to follow process).

    Hope that helps!

    -Rob

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    Robert Jolliffe [Designation]
    President
    Sabre Limited
    Cambridge
    robert@sabrelimited.com
    www.sabrelimited.com
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