Part 2: Guide to Inventory Cycle Counts for Optimizing Your Warehouse Layout and Design
Cycle counting is a preferred technique for businesses that need to control and manage inventory, without the hassle of having to count the entire stock in a warehouse –referred to as physical counting. Cycle counting bases its process in sampling a certain number of items and counting them; then accuracy is measured by comparison and adjustments can be made as needed. Cycle counting infers two things: the first one is that the accuracy in the sample counted can be utilized to determine the accuracy of the whole warehouse. The second inference is that if an error is found in the sample, it is expected the rest of the warehouse to have mistakes as well. Like every other part in the Logistics scope, the success of the procedure depends a great deal on the warehouse layout and design.
The comprehensiveness of a cycle count program lies upon three inputs:
1. How many SKUs (stock keeping unit) does the company want to count?
The answer to this question depends on the total number of SKUs and the key SKUs (meaning the company’s “A” items). Contrary to popular belief, “A” items do not solely refer to high dollar items following the 80/20 rule. You may have low-cost items that are indispensable to your operation. Huge automotive companies have halted their operation due to the lack of the smallest of components, resulting in the loss of hundreds of thousands of dollars. Cycle count programs must aim to count as many “A” items as possible during a fiscal year.
2. The second question is: what are the resources available to perform the counting? Who is going to do the counting, what tools do they have, and how much time do they have to spend on the process?
3. The third question is: how regularly is the company going to cycle count? You should start by calculating how many items will be able to be counted each year, and then translate it into how many per day. Again, effective warehouse layout and design can be the crucial element of being able to cover a more significant part of the inventory.
Best practices for conducting a successful cycle count
A common saying in Engineering and Lean Manufacturing states that what cannot be measured cannot be improved. When implementing a cycle count program, the guidelines must be clear, and the goals should be numeric. For example, rather than asking your employees to “perform a good inventory count,” give them a specific goal to set a tolerance for less than 5% error. There are basic principles that when complied, ensure the accuracy in a company’s inventory records.
1. Have a warehouse management system. Relying on available warehouse management technology provides certainty to your numbers. A warehouse management system is the most accurate manner of monitoring the movement of inventory. From purchased goods to shipped finished products, it allows close tracking of the stock that is not feasible when doing manually or utilizing an excel spreadsheet. Most systems encompass adjacent platforms to program production and schedule orders; therefore the investment is 100% worth it. Users are also able to organize counting schedules as well.
2. Create an optimized cycle count. Some goods of high value to the operation represent a higher misplacement risk. Depending on the warehouse layout and design, these high value and high-risk units must be counted first. This practice also includes counting opportunistically, meaning when inventory levels are lows, during off-time or when a location is empty. As the saying goes, “there is no better way to ensure precision than when there is nothing to count.”
3. Interleaving. Adding functionality to your counts increases value to the task. For example: if an employee is on a lift retrieving items high up or replenishing, that’s an excellent opportunity to make a count. Optimized warehouse layout and design is needed to interleave. There’s no need to add confusion if your space is disorganized.
4. Compare cycle counts and use blind counts. The counterpart of cycle counting is the comparison between the numbers on the cycle count and the numbers on the ERP system. Discrepancies are somehow expected due to the inevitability of human error. If the figures do not match, the first thing to do is re-count the sample and then make the necessary adjustments. Employees are often tempted to alter the numbers on their counts if they have the system records on-hand. To avoid this, it is highly recommended to use Blind Counts, where the employee is unaware of the numbers listed on the system.
5. Set a tolerance for discrepancies. Although disparity is anticipated, a successful inventory cycle counting process involves an established tolerance for error, and this mustn’t be high. It becomes essential for the company to distinguish the errors that require a second count, in which case it is advised to place an experienced individual in charge.
6. Avoid starting cycle counts at the same location each time. Companies are prone to follow routines since it makes the job easier. However, when it comes to cycle counting, starting each time at the same location makes most companies only get so far; and periodically begin again at the same point. If the business has a clear warehouse layout and design, it is possible to schedule cycle counts at different points and ensure more coverage and accuracy. The Warehouse System can also be utilized to determine which locations have not been counted in a specific period. While it is encouraged to focus on high-value items, you do not want to neglect any part of your inventory.
7. Involve auditors when developing cycle-counting strategies. Reviewable, correct logs are as crucial to the financial side of the company as to any other sector. Involving auditors enhances integrity in the process and the feedback provided is useful for improvements.
8. Understand & radiate the value of cycle counts. Giving the process its well-deserved value and attention permeates to lower levels. If top-executives do not raise the bar when it comes to accuracy, why would the rest of your employees care about it?
The Role of Warehouse Layout and Design in Cycle Counting
Conducting an effective and efficient cycle count in a chaotic warehouse can be a challenging task. Cleaning routines, defined locations, and a proper labeling system reduces reluctance in employees to perform a cycle count carefully and accurately.
Warehouse layout and design play a vital role in the organization’s supply chain. Warehouse design includes space optimization, labeling, racking and the software system to support it (link to racking solutions pages). Organizing the space it is often easier said than done, but following the below tips from the logistic experts at Specialized Storage Solutions will reduce your struggle and will help you enlarge your productivity.
1. Keep your space clean. The company must allocate at least one hour per week to cleaning the warehouse. Having open aisles and no scattered items means employees can move around more quickly and get things done faster. This also means to reduce clutter.
2. Implement lean inventory practices. Sitting on unneeded inventory is not only financially inadvisable; your employees would have more items to sift through when organizing, completing orders, seeking for goods, among others. Reduce your safety stocks to the point you can run production smoothly without hurting customers.
3. Reduce the number of shipping containers. A good way of streamline operations is by lowering the containers available. The more space to stock, the more stock you have. Reducing the number of containers also pushes employees to become more efficient.
4. Improve space utilization with patterns. Traffic patterns, (link to Uflow/Thruflow article) specific placements for shelves and containers improve the efficiency of your warehouse.
5. Use stackable shelf bins. Small items are easily stored and counted if placed on shelf bins. Remember small units do not to be hand-counted but weighed. This reduces time when cycle counting.
6. Place similar items together. Having categorized areas makes counting easier and keeps the space more organized.
7. Train your staff regularly and adequately. No matter how well-organized your warehouse is at a specific point, if your team isn’t well trained, the efforts will become vain. Employees must have tools, clear guidelines, proper feedback, and specific goals to be met.
8. Organize for safety. Safety must come as a priority for every space in the organization, including a warehouse.
9. Eliminate non-added value steps. A lean organization is always looking to eliminate wastfulness, whether is materials, time, space or any other resource. Carefully analyze your process, at least annually, and look for any avoidable steps in the process.
10. Customize and re-evaluate your warehouse layout and design. Rather than following a rigid path, you must know your industry and organize according to it. Moreover, each company has specific ways to conduct operations. Only you know what works best for you. Once you have a design you feel comfortable with, keep in mind this must be changed periodically. Your sales will grow, the market will turn and inevitably alterations to your company and materials will be done. Adjustment and adaptations are critical to your company’s endurance.
Consider an operational efficiency analysis from Specialized Storage Solutions. Part of our analysis identifies opportunities to increase productivity within both your office and warehouse processes. Each industry we serve is competitive and top performers excel at managing expenses and efficiencies within their respective operations. The challenge is to establish priorities within the operation to maximize profitability and determine the best way to attain efficiency goals. The primary benefits of an operational analysis include:
- Finding ways to reduce expenses
- Optimizing resource allocation
- Regaining precision focus on top priorities
Specialized Storage also can direct you to the right tools to meet or exceed your goals for increased efficiency and efficient warehouse space utilization. Let us get you started on the path to take advantage of the cost savings your company can achieve through maximizing productivity from the lobby to the loading dock.
Cycle counts and warehouse layout and design go hand-and-hand. The tasks may feel overwhelming at the beginning, especially for new companies but the last piece of advice may give you the direction on how to proceed: “Start small but aim high.”