The Glass Ceiling of Cycle Counting

Cycle Counting Case Example 

The Situation

This company's cycle counting program enjoyed initial success but then stalled out. The situation was particularly frustrating because the program's justification was based on the elimination of the annual physical inventory and this could only happen when accuracy reached the goal of 92%, i.e., anything less seemed like complete failure. Here are the essential facts:

My book, Cycle Counting & Inventory Accuracy explains what was happening and how to address the problem (Chapters 2 & 6). We also offer an online, Active Learning workshop.

Root Causes

The immediate cause of this problem is that errors are entering the system at about the same rate that the cycle counters remove them. When the removal rate exceeds the input rate, IRA improves. But, the higher the IRA, the fewer errors get removed by cycle counting. The fundamental choice is to reduce the entering errors or remove additional errors through more cycle counts. Additional cycle counts will be expensive and, as IRA improves, even less effective.

The best choice is to prevent new errors from entering the system. The company had trained their people in Six Sigma and process improvement but they were unable to apply it to the problem of transaction errors. This reflects several issues:

Perhaps a more fundamental root cause was the fact that Finance had instigated, planned and implemented the program without other involvement. All parties operated from a mental model that considered inventory accuracy Finance's responsibility and that the Finance department received the primary benefit by elimination of the annual physical inventory. In reality the biggest benefits are not from the physical inventory elimination.

Moreover, Finance was not creating the new errors. The errors are created in the warehouse, on the factory floor, in sales, in scheduling and even in other departments. Their participation in process improvement is absolutely essential.

The Solution

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The Strategos Guide To Value Stream and Process Mapping goes  beyond symbols and arrows. In over 163 pages it tells the reader not only how to do it but what to do with it.

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Books & Videos

Guide to Cycle Counting

Warehouse Planning Guide

Human Side of Lean Video

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SEP 2007