CYCLE COUNTING BEST PRACTICE Courtesy of Bob Steele October 6, 2004 Introduction Cycle counting is a crucial business discipline. It not only enables high-performance store operations, but also has a significant impact on supply-chain operations: Accurate data is foundational to retailer-supplier cooperation and collaboration o On promotion, merchandising, & replenishment o For inventory optimization (core-inventory initiatives and vendor- managed, and –assisted inventory programs) o For better product development, improved order cycle times, reduced freight cost, less returns What’s Cycle Counting? Definitions: A systematic method of taking inventory continually through out the year A dynamic audit that allows for real-time inventory accuracy of merchandise. A method for auditing inventory accuracy and reconciling errors on a cyclical schedule rather than once a year. Why Is It Important? Improves data accuracy Cycle counting drives ordering, replenishment cycle times, category management Affects your store and the entire supply chain Is the basis for all decisions related to POS data analysis Reduces human error Helps identify and correct receiving, shelving, selling, ordering errors Staff training is vital to ensure correct counts Replaces annual inventory Can Increase Sales with Reduced Inventory Real-time inventory accuracy means less out of stocks It also aids finding misplaced and lost stock Can Increase Performance Improved inventory turns and GMROII because you can measure what’s in stock and moving Better customer service through higher in-stock rates Cycle counts and resulting accurate data increase productivity and efficiency, and lead to reduced operational and inventory-carry costs A Continuous-Improvement Practice Cycle counting helps ensure accuracy is part of your store culture It optimizes business opportunities through data-driven knowledge RECOMMENDED CYCLE COUNTING BEST PRACTICE AND STRATEGY 1. COUNT ALL INVENTORY QUARTERLY IN A METHODICAL, DISCIPLINED MANNER. Recommended to count entire inventory four times annually: o An example of how to determine what needs to be counted how often: 8,000 items in inventory / 250 (number of days in operation per year) = 32 counts 32 counts x 4 times per year = 128 products counted per day. 2. ASSIGN A CYCLE-COUNT TEAM LEADER Give one person responsibility and accountability for inventory-accuracy program Train staff on procedures, value of inventory accuracy, etc. o Include cycle counting and inventory accuracy priorities in new-employee orientation 3. DETERMINE IN ADVANCE YOUR COUNTING STRATEGY: Count by Physical Area or by Category o Use a systematic planned approach for either method. Divide your store into physical areas, such as aisles, fixtures, shelf, bin, etc., and organize a consistent counting pattern that ensures all stock is counted within the specified time parameter. By category means counting by product type, classification, genre, etc. o Identify areas that can be counted within specified time constraints and ensure staff is appropriately assigned so count is conducted on schedule. Count your stock o Some retailers prefer to count after hours to expedite the process and avoid diluting customer service capabilities o Check your POS system for supporting reports and other capabilities that contribute to counting speed and accuracy, such as lists by category or location. 4. TRACK & INVESTIGATE DISCREPANCIES – EVALUATE FOR CONTINUOUS IMPROVEMENT Identify problems, operational errors, sales/forecast errors, etc. Take corrective action based on findings o You may want to change store procedures, processes, etc. to ensure proper inventory control. o Use updated data for performance and sales analysis.