In any environment where inventory is involved, a good cycle count program can help reduce so many types of wastes. It can help eliminate waste of inventory, waste of waiting and waste of overproduction. In a lean environment, where the goal is to keep inventory at the lowest cost effective levels possible, inventory accuracy is even more critical. From finished goods and sub-assemblies to raw components, a good cycle count program will ensure the parts are available when required. In order to implement a cycle count program, you will need to understand the A, B, C's of your inventory, frequency of counts and root cause investigation.
The first step in starting a cycle count program is understanding your A,B,C's of inventory. Your "A" level inventory is your most expensive product and should represent 20% of your inventory. Your "B" level product will represent approximately 50% of your inventory and will carry less value than your "A" inventory. The remainder is your "C" level inventory which represents your lowest cost invenotry. An example of "C" inventory would be materials such as inexpensive screws or small springs, which don't take up a lot of space and don't hold a high dollar value.
The idea behind these rankings is to understand which inventory carries the most value and/or has the longest lead times. By knowing this, you can spend more time focusing your planning on the "A" inventory, and less time planning the "C" inventory. As a result, your "C" level inventory will be high, but will not have a large negative effect on carrying costs or space requirements.
Once the A,B,C's are completed, you need to set your count frequency. This will be based largely on your manpower allocation for cycle counting and the number of different parts being counted.
"A" items should be counted on a daily basis or at the absolute minimum, weekly. As they are generally the more expensive parts, inventory should be kept low to keep carrying costs to a minimum. For long lead time parts, serious downtime could occur due to inaccurate inventory. Either way, it is critical that these parts are counted daily and monitored closely.
"B" items, as they represent the bulk of your inventory, should be scheduled less frequently. A bi-weekly or even monthly count of these parts, spread out evenly over the duration, should be sufficient. For example, if you have 100 "B" level items and your count frequency is weekly (5 working days), you would count 20 of these items per day. A monthly schedule would see less of these parts counted per day.
"C" items should be counted infrequently as they are inexpensive and easy to get in if needed in a hurry. Based on the needs of your company, "C" items can be counted quarterly or semi-annually. If there is a problem component in the "C" level items, the part count should be increased on that part until the cause is identified and resolved.
Root Cause Investigation
When using a cycle count program,
it is very important that you address any issues as they arise. This means not only rectifying the problem in the short term, but understanding what caused the problem and putting coorective measures into place. It will not serve you well to scrath the surface during a part shortage investigation. Be sure you identify the true root cause and make the necessary corrections. If it is a Bill of Materials issue, fix the BOM. If it has to do with people not performing their jobs properly, find out why and fix the problem.
The more effort you put into finding the true root cause, the greater the benefit you will receive from a cycle count program.