Implementing Cycle Counting & IRA

Why You Need Prevention As Well As Correction

Benjamin Franklin "An ounce of prevention is worth a pound of cure."

Improving inventory record Accuracy is a worthwhile and necessary goal for most firms. Cycle counting and physical inventories both correct problems after the fact. Ben Franklin had a thought about this and Shigeo Shingo would probably have dismissed both approaches as wasteful and wrong. Nevertheless, most of us are stuck with these approaches, at least for some period of time.

Cycle counting requires a huge effort and takes months to show results. Physical inventories give immediate results but require large efforts and cannot sustain accuracy.

A practical and effective approach to Inventory Record accuracy uses both the preventive and corrective methods of:

• Physical Inventories
• Cycle Counting
• Error Reduction
• Transaction Reduction

Error Correction

Figure 13 shows a typical IRA over time when physical inventory is employed by itself (red line), when cycle counting is used alone (green line) and when the two are used together (purple line). As discussed previously, the physical inventory gives good and immediate results but cannot sustain accuracy. Cycle Counting eventually provides excellent and sustainable results but it takes many months.

The combination (purple line) is usually the best approach. The physical inventory immediately raises IRA. Cycle counting then sustains it at a high level. The precise curve for an actual situation might differ from figure 13. It depends upon:

• Physical Inventory Effectiveness
• Number of Cycle Counts
• Error Creation Rate
• Number of SKUs

Figure 14 shows the effect of cycle count rate. In this example 200 counts/week results in an IRA of 94%. A rate of 100 counts/week peaks at about 84% and in both cases it requires almost two years to reach the maximum accuracy. A rate of 400 counts/week gets a 98% accuracy after one year.

Error Prevention

The rate at which new errors are crated and introduced to the inventory system also affects both the maximum achievable accuracy and the time required to approach this level of accuracy. Figure 15 shows a typical system and how error creation affects it.

With an error rate of 40 errors/week, the maximum obtainable IRA is about 84%. with an error creation rate of 10 errors/week the IRA is 96% and accuracy increases much faster in the early weeks.

Designing & Implementing the IRA System

• Estimate Cost of Current Situation

• Design Program

• Plan Selection Strategy

• Estimate Required Count Rate

• Calculate Staffing

• Plan Training

• Develop Implementation Schedule

The details of these tasks are part of our training program on Cycle Counting & Inventory Record Accuracy.