Page 346 - Accounting Best Practices

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16–10 Eliminate the Physical Count Process
1. Throw out the trash. The warehouse must first be cleaned up before spending
a great deal of time on counting parts. Accordingly, trash, obsolete parts, and
old supplies or tools must either be thrown out or moved to an outlying loca-
tion.
2. Identify the remainder. The first step reduces the amount of inventory items
to be reviewed for part numbers. This is now the main task—review all
remaining inventory and post a part number on it.
3. Consolidate inventory. Once all parts are identified, it is time to cluster them
together for easy counting, rather than leaving them in a variety of locations.
This takes several iterations before all inventory is completely consolidated,
but do not worry about it—the main reason for consolidating at this stage is
to make it easier to count and box the inventory in the next step, so a few
unconsolidated items will not present much of a problem later on.
4. Count and box the remainder. Count all the inventory and then box or bag it.
There should be a seal on each container, with the quantity marked on the seal,
so that a glance at the container will reveal the complete quantity of the part.
This is of vast benefit to cycle-counters, who can now cycle-count hundreds of
items very quickly. Please note that it is not necessary at this point to correct all
inventory balances in the computer, for the cycle-counters will soon take care
of this problem when they start to methodically review the entire warehouse.
5. Create warehouse locations. Clearly mark every bin location. The location
should include the aisle, rack, and bin number, so there is no question about
where an inventory item is located. This step is crucial for cycle-counting,
since one cannot cycle-count if one cannot first find the part.
6. Assign inventory to specific locations. Go into the computer and assign a
location code to every inventory item. This may require special program-
ming to put a location field into the computer database.
7. Create a cycle-counting report. Create a computer report that lists all on-
hand inventory, sorted by location code. The cycle-counters must have this
available as their main tool for reviewing inventory.
8. Segregate the warehouse. Put up a fence around the warehouse and lock the
gate! Now that cycle-counting is about to begin, there should be no way for
nonwarehouse staff to enter the warehouse in order to take parts off the shelf.
9. Initiate cycle-counts. Assign cycle-counters a section of the warehouse to
count. Issue them the latest cycle-counting report. They must carefully count
all the items in every bin location and make corrections to the report to
ensure that the computer database is correct. The warehouse manager should
monitor their progress every day to ensure that they are completing their
counts on time. A good initial cycle-counting frequency is to review the
entire inventory six times a year; this high volume of counting can drop later,
when accuracy levels increase.