Cycle Count Best Practices & How To Cycle Count

what's up everyone welcome back to lace up channel my name is mickey in this video i'm going to give you your ultimate guide to cycle counts we're going to talk about what is a cycle count then we're going to talk about what causes the need for a cycle count what are cycle count methodologies you can use and last but not least what are the cycle count best practices anyways let's get right into it so what is a cycle count a cycle count is a transaction designed to ensure the accuracy and validity of your inventory so a cycle count means that you're going to walk up to either a bin or a product within your warehouse and you're going to count it so let's say for example i've got 100 bananas in a bin in my warehouse i walk up to that bin and let's say i only count 90 bananas well when we enter that 90 bananas into our system the system should generate an adjustment of minus 10 indicating that in that bin or for that item there was a shortage of 10 bananas quite simple right now at this stage you're probably mickey that sounds an awful lot like physical inventory accounts what's the difference listen johnny i'm with you it sounds almost exactly the same but there is some tremendous nuance between the two approaches so in a physical inventory account you literally have to shut down your entire operation and you have to count everything and until everything's counted you cannot resume executing picking packing and shipping actions now this is a problem because it takes a tremendous amount of time to count a large warehouse at times my customers have had to do this on a saturday and a sunday which can be a little bit bad on employee morale as well because everyone's got to come in on a weekend and count product now even though there's a bunch of negatives to doing physical inventory accounts i can tell you unequivocally that doing them will ensure the accuracy of your inventory and i can tell you that your employees on those days will be 100 focused on counting inventory so maybe your physical inventory accounts will be just a little bit better that being said most companies can scale their business whilst having to count every product in their warehouse every single month so that is where this concept of cycle count comes in a cycle count is designed to count a small segment of your inventory a small sample pretty straightforward right then when you count that sample normally you're going to uncover issues and you can solve those issues for that small sample and then extrapolate those fixes across all of your products so a cycle count makes you or allows you to take you're counting from a physical inventory large batch approach to a small batch cycle count approach now guys at this age you're probably like okay mickey why is a cycle count necessary why is it that my inventory is wrong in the first place well it's pretty straightforward guys and i've made multiple videos about this before so i'm going to make this quick and painless for you first and foremost the fact that somebody messed up on receiving so how many times your employees mark the wrong quantities when they receive they don't see items in their entirety they miscount items right they mislabel or mis-identify which items were actually received they make a set of mistakes that make the inventory inaccurate from the time it enters your dock door and now when that product's checked in to a spin location obviously that's going to yield some inaccurate inventory results so the first way that inventory gets destroyed is through inventory receiving secondly human error is putting the product away how many times have your employees taken the product or taking a pallet of a product and put it in the wrong place within the warehouse i can tell you my customers do this all the time because unequivocally all my customers have employees that are just looking to get their job as fast as possible and get home to their families so what they do when they're checking a product in they might go to the location or the range of bins that's supposed to host that particular product and find hey there's no space so then they take that pallet and they find any open space in the extreme other end of the warehouse bear in mind some of these people don't have wms systems and they put the palette over there now obviously over time people forget that that palette is over on the extreme other end of the warehouse and the product eventually gets wasted so these errors and check-in processes create overages and some bins shortages and others which are a complete disaster the third place where there's errors to the inventory is in damage and return items so damage and returns are normally treated by the distributor as a credit so when you go credit a customer and pick up the product you bring it back to the warehouse that being said most erp systems most wms's treat both return product and damaged items that were returned as the same which means that your inventory goes up and the distributor fails to identify a process to categorize those products and then to adjust out the added inventory from the credit so that's an easy way to get your inventory messed up if i pick up five bad bananas from my customers and those coming on a credit jack up my inventory by five well now my inventory is going to be short those five bananas because in reality i'm going to take them and throw them into the garbage can the fourth way inventory gets destroyed is through pick and pack errors you guys know this i picked the wrong item i picked the wrong quantity or i ship duplicate items pretty straightforward i've talked about that 100 times the fifth and final way inventory gets messed up is the way that none of us want to admit is there called product shrinkage so we have an employee that walks into the warehouse and schemes away right to walk out with product that happens i mean i know to some extent it's not too crazy at most warehouses but it does happen anyways now that we know why a cycle count is necessary let's get into the different cycle count methodologies so the first method of cycle counting is called abc cycle counting abc cycle counting takes a page from the 80 20 rule and it applies a weight to each of your products so let me tell you what the 80 trinity rule basically says that 20 of something yields 80 of something else and you can apply that directly to your product 20 of the product yields 80 percent of the product sales so what the abc method says is you want to apply an a a b or a c to your product a products are those that yield percent of the sales b products are those that yield the next fifteen percent of sales and see products for those that yield five percent of sales and then you wanna cycle count proportionately so you wanna count the products that yield eighty percent of the sales are eight products six times more frequently than you do the fifteen percent of sales products and then you wanna count the fifteen percent of sales three times more than the five percent and i think my math is right there but you guys can do the math yourself and figure out 80 or first that's why they're your a's fifteen percent are second which is why they're b's five percent or third which is why they're c's the second method of cycle counting is control group cycle counting control group cycle counting means you're going to select a product a product category or a bin or bin of areas to count and then you're gonna do that over and over and over again until it yields an inaccurate inventory result so what you're gonna find when you have a set of products that you're counting over and over and over again is that you're going to immediately find any discrepancies and any issues with the inventory now this is fascinating because the more you count the higher the propensity of you finding a mistake the higher the propensity you can fix that mistake by giving your team and your staff a set of processes that enable you to fix that mistake and then you can take that mistake or that fix and extrapolate it out to the rest of your products that's why control cycle or control group cycle counting is so dang powerful because it enables you to use a small batch cycle counting principle and find mistakes and apply them to your entire inventory normally this type of cycle counting is used to find mistakes it's not normally the best most efficient way to do the cycle cutting within your warehouse you can leave that to the abc method now this teacher probably mickey but i've got a warehouse that has mostly the same items just small variations between them what should i do listen john i think in that case you should use the random sample cycle counting you should take a random sample of your items specifically you should take a number right that allows you to get through all those items in one year by counting x number of items per day and you should count them every single day randomly now the randomness of this sampling allows you to find a discrepancy within an item group that you would have not otherwise checked which means you might find that your employee's stealing a product that is slow moving whereas the high rotation products aren't touched and because nobody notices that you're not selling those products they're still getting stolen from right so what you want to do is you want to implement a random sampling technique where you write down all your products and again you assign x number of products per day until all of the products have been counted per year so now that you know the different cycle count methods let's now discuss how to do cycle counts step one define and decide on a cycle count method is it the abc method is it the control group method or is it the random sample method pick one step number two define the number of skus and the frequency at which you want to count them per year so let's say for instance i've got a thousand skus in my warehouse and i want to count each sku once per year well that math is pretty straightforward that means we want to count roughly 83 skus per month we want to count 21 skus per week we want to count three skus per day that's simple if you wanted to do this double so if you wanted to count your skus twice a year then you would double that up and you would do six a day that's straightforward so calculate the frequency and the number of skus in your warehouse so you can define how many items you have to count every single day step number three identify your accounting resources when are your employees available to count what employees are available now most of my customers they use lows in productivity or times where the low in productivity is high for employees for instance after lunch or after their shift or right as their shift is ending to do cycle counts because to be frank the cycle connectivity is kind of an activity it doesn't require a whole lot of brain power to do you literally have to walk up to a bin look at an item and count the quantity it's that straightforward so once you identify the resources and the times at which you're gonna do it you should be able to up the overall productivity of your warehouse hey i'm sorry for interrupting your video but before you continue do me a favor scroll down below give me a thumbs up give me a subscribe i'm trying to pop out content like this to help your business every single day anyways back to the video so now that you know just about everything about cycle counts let's discuss cycle count best practices the first best practice is you want to make cycle counts a daily occurrence you want to make them a culture that's ingrained into your employees they need to be accustomed to doing cycle counts they need to feel uncomfortable if they haven't done cycle counts for the day imagine for a moment you've never done cycle counts and you're now trying to apply this idea to the employee the employee is going to be you know a little bit resentful a little bit they're going to give you some pushback in regards to whether or not they want to do cycle counts but if the employee from day one is trained and knows that the cycle count is a critical aspect of their job then they're going to be able to do cycle count seamlessly and frictionlessly the second best practice to cycle counting is to make sure that all of your inventory transactions for that bin that you're counting have been closed down i can't tell you how many customers i have that go and pick from a bin they don't have a network connectivity so that transaction doesn't apply automatically and whilst that transaction is sitting on their scanner someone else goes and they count the bin now when both of those transactions are sent at the same time depending on when they're executing yields normally an inventory that's messed up so make sure that your inventories are or that your transactions for the inventories in those bins are closed down because if they're not that could yield a a an in sequence let's say a a sequence of events that process a transaction before the other thus leading to an inventory that's messed up number three use the inventory accuracy formula so the inventory accuracy formula allows you to divide the number of items you counted whose inventory was incorrect by the total number of items within your inventory so let's say i've got a thousand items in my inventory and i counted 10 items that were incorrect well that means that my inventory inaccuracy quotient is now one percent and you guys want to maintain this inventory and accuracy quotient over time because you want to see if it's moving up or it's moving down you can even maintain it by item by skew or by bin number four identify the fastest moving items in the warehouse again eventually most of us we're going to end up in the abc method of cycle counting and in order to do so you need to know which items move the fastest now i know you may go like your sales numbers and the money may look good but if you don't know which items are actually moving quickly then you won't know which items to actually apply cycle counts to best practice number five always cycle count bins when they get empty so this is something you can do that's super simple instead of waiting to cycle count you know once every month or whatever it takes for that bin to come up in your cycle count regimen to be counted always count a bin when it's empty so if i pick from a not from a bin and i picked the remaining five cases now there's no product in that bin i think yours your your warehouse manager should come down and count that bin now that ensures that you put a practice in place that always accentuates the accuracy of the inventory within those bins and it may yield some small errors that you can find and again fix and apply those fixes across all your bins so again count all your bins when they get empty point number six the first time you do a cycle count make sure you count twice i can't tell you how many times i've personally gone into cycle count for a customer i scan the item and i start counting and i count 80. and then i'm like huh let me count this again because i don't think i think i lost track in the middle of that counting so i do it again and then the count comes out it's 85. and then i'm like okay now i'm really second-guessing myself let's do it third now i did it again and the count comes out as 85 so that validates that the count accounted the second time was indeed the correct count so most of us we think that we're counting correctly the first time whereas the reality is most of us make mistakes while counting because we start thinking about other things we let other things cloud our judgment and cloud our mind which leads us to lose count okay so what you want to do on an initial cycle count is count two times point number seven count one bin one area one segment of products and not the entire warehouse you guys have got to get away from the habit of counting everything counting everything is not only unproductive but it forces you to shut down your operations which means you're going to lose money or you're going to have to pay a extra payroll in the way of overtime which again leads to lost money for you make sure you you identify which segment which product line what bin you want to count and make a schedule as we talked about before in this video that's the most important thing best practice number eight and the last best practice change up your cycle count schedule so let's say you have jimmy cycle counting the first month change it up to bobby on month two then change it up to billy on month three and constantly be cycling through whose cycle counts because that makes it more difficult for your employees for any one person to gain the system and to steal from your business if you've got the same person cycle counting over and over and over again it becomes increasingly easy for them to input an incorrect value and steal the difference from your bin so again cycle cycle through no pun intended cycle through the people who are doing the cycle counts all right guys i hope that you enjoyed that video i'm sorry if i blobbed down a little bit at some points but the whole purpose is to provide you with some insight in regards to the cycle count how it works and how you should do it if you enjoyed the video go down below give me a thumbs up give me a subscribe and i look forward to seeing you next video [Music]

Channel: Warehousing & Distribution Tips By LaceUp

Views: 1,404

Keywords: Warehouse Management, Inventory Management, wms, inventory management system, warehouse management system, warehouse advice, warehouse tips, warehouse fulfillment, Warehouse, inventory advice, inventory tips, inventory, cycle counts, cycle count inventory, physical inventory count, physical inventory, inventory adjustment

Id: 5rpXhdFVzGY

Length: 15min 9sec (909 seconds)

Published: Mon Sep 27 2021