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Inventory Best Practices
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Many of the other best practices noted in this chapter will help to keep inven-
tory accuracy within reasonable limits, such as auditing inventory transactions or
cycle counting; but to be absolutely sure that quantities are correct, the best way
is to compare recorded inventory activity to on-hand inventories. This approach
varies from auditing because it assumes a 100 percent review of all transactions
for selected items. Because it is a highly labor-intensive approach, one must con-
fine it to a minimum number of especially expensive or critical inventory items.
To use this method, one should conduct a daily comparison of on-hand quan-
tities to every transaction associated with them, such as receipts, inventory
moves, scrap, production, returns from the production floor, and shipments. Of
particular interest during this review process is any transaction that is not made,
is made twice, is made in the wrong amount or on the wrong date, or involves the
wrong part number or unit of measure. Only by conducting this complete review
every day can a company determine where there are problems in the stream of
transactions and fix them immediately. One should also try to spot trends in or
concentrations of transaction errors, such as a number of receiving or scrap
errors, which allows one to target a specific problem and fix it.
This best practice is strongly supported by those other departments that rely
on accurate inventory levels, such as the warehousing, production, and purchas-
ing departments. However, they support this because they do not have to provide
the significant amount of staff time required to ensure its success. Accordingly, a
controller should be extremely careful to use it only with a very small minority of
the inventory items, monitor it carefully, and eliminate items from the review
process as soon as it becomes apparent that there are no transactional errors
occurring.
Cost: Installation time:

16–10 ELIMINATE THE PHYSICAL COUNT PROCESS

As noted in the last section, there are a variety of problems associated with hav-
ing any sort of physical count at all. This section outlines how to use cycle-counts
to completely avoid any physical count.
One must use cycle-counting as the primary way to eliminate the physical
counting process. To do so, there are a set of carefully defined steps to follow
before inventory reaches an accuracy level sufficiently high to allow one to avoid
the physical count. One should read through all of the following steps and make a
realistic assessment of a company’s ability not only to complete them, but also to
maintain the system over a long period. If it is not realistically possible, then do
not run the risk of wasting up to a year of work on this project—there are other
best practices in this chapter that pose a much higher chance of success. The
steps are as follows: