Arriving at a consensus on the method of inventory management in your distribution center network is not a simple process. There are many factors to consider before making a final decision. This blog post is designed to offer discussion points and topics to consider in the decision making process. These are not meant to be specific to an industry or sector. Rather, they are general characteristics commonly found with cycle counting and physical inventories.

Physical Inventory

   Pros

• Get a reasonably accurate count, adequate for inventory financial reporting purposes (the accountants like it)
• Usually only performed on an annual (most common) or biannual basis
• Periodic inventories (usually monthly) can be productive for smaller facilities that warehouse less than 3,000 SKU’s
• Accounts for all physical locations in the warehouse, not just the locations showing a system inventory balance

   Cons

• Typically requires a lot of time and manpower
• Does not provide real-time inventory accuracy
• Does not promote inventory discrepancy investigation in a timely manner
• Often there are advance preparations such as tags and forms to pull together
• Actual counting requires freeing a large number of personnel for a long period of time in every inventory location
• Interruptions to operations results in capacity and customer service issues
• Typically, clerical staff enters hand-written information into the appropriate system which is prone to errors
• Physical inventories are rarely accurate

Cycle Count

   Pros

• Improved, real-time inventory accuracy
• Aids continuous improvement through timely root cause investigation of inventory discrepancies before they impact operations
• Reduces stock-outs and excessive inventory levels
• Promotes ABC inventory classification which results in high velocity, high value and critical items being counted more often
• Does not require operations to be interrupted to count

   Cons

• Typically requires periodic accuracy audits for accounting verification purposes, using objective sampling techniques
• Requires dedicated inventory control personnel in larger facilities
• Very difficult to manage without adequate technology

I hope these discussion points assist you in the decision making process. If you other ideas or thought, please feel free to comment on this post.

By Jeff Waller
Waller & Associates, LLC
www.WallerAssoc.com