ERP Inventory: The Evolution of Our Cycle Count Process

A few years ago we decided to set up a cycle count process. The main goal was to ensure a high degree of inventory accuracy. Accurate inventories are necessary to plan material purchases and to determine the availability of products for sale. Accuracy is one of the key must-haves in any ERP inventory system.

We also had a secondary goal. No one enjoyed working a weekend twice a year for the physical inventory so we wanted our cycle count process to be blessed by accounting, both internal and external, and be good enough to make those tough customers happy.

Our first step was by the textbook. Calculate ABC codes based on past usage of items times the standard cost. Set up count frequency so that A parts were checked monthly, B parts quarterly and C parts semi annually.

After we had seen pretty much every item we found a few that were C items but were big and heavy. Since ABC codes also helped determine purchasing strategies, we raised these to B so we could keep fewer on hand. There were some others that calculated to be A parts but we could get these nearby easily so we reduced some to B parts.

Still, We Wanted More

We wanted more from our cycle count process. In electronics, items have short lives. There were many items the ERP inventory system wanted to code as C because the past usage was low. We switched the bases now to planned usage based on orders and forecast. This gave improved ABC codes but required manual overrides to the codes the ERP system wanted to assign.

We still wanted more from the process. ERP Inventory errors only happen upon transactions. If the part doesn’t get issued or received and only sits on the shelf, the only possible error is to lose it. Next, we developed queries to count the number of transactions on each part. We began using a two-step process to assign the ABC codes. Planned usage was the key value but we factored in the number of transactions. Now we were able to reduce the A parts to only about 2% of all inventory items. About this time, we also began to assign a D code in addition to the usual ABC. D parts were dead. There was no longer any demand. These weren’t going to move so we cut the frequency on these to once a year. We were able to increase the frequency of B and C parts.

Another improvement came from one of the stockroom workers. He found when he took *the last of an item from a bin, he could count to zero very quickly. He started entering a cycle count right away. These were easy counts. Since our plan was to check for parts within an ABC frequency code that had not been recently counted this allowed us to select parts for counting that really needed a count.

This is an example of continuous improvement within a small area of our ERP. We did get approval to skip physical inventory. But the best part was tremendously improved confidence from everyone in the accuracy of inventory. How can you improve your ERP?

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Tom Miller

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Tom Miller

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