Control Inventory Record Inaccuracy via Cycle Counting

Literature review on to control Inventory Record Inaccuracy via routine counting method

Abstract:

Inventory Record Inaccuracy is a biggest task in supply chain. Considering the value of the topic, various research has been done in this area and commonly research workers have suggested to carry out a periodic inventory audit as precautionary measure. However, it isn't yet founded that how inaccuracy at different locations affects supply string performance and how a highly effective cycle-count program for a multi-stage supply chain should be designed. This paper aspires to answer these questions by considering a serial supply string that has inventory record inaccuracy and functions under local base-stock guidelines.

Introduction: Inventory can be an integral part of supply chain. It is a list of items which business holds within the source chain including fresh material along with manufacturing materials, work-in-progress, semi-finished goods and completed goods. An expert management of inventory is a key to success within supply string because inefficiencies in inventory record management causes an ineffective replenishment decisions which could be disastrous for the business enterprise.

Inventory record inaccuracy means difference between genuine systems available in stockroom and quantity of units shows in information systems. There could be various reasons for it such as shrinkage, scanning mistakes, thefts, wastage, keeping track of errors and transaction errors. This inaccuracy leads to ineffective procurement decisions, which results in poor service deliveries and extended inventory costs. That is a major concern which affects resource string performance of manufacturers, marketers and retailers. Matching to ECR Europe (2003), the worthiness of lost inventory credited to shrinkage in 2000 was e13. 4 billion for vendors and e4. 6 billion for manufacturers in Europe.

According to Kok and Shang (2007), pattern count is most commonly used method to reduce the inventory control inaccuracies. In this process, inventory documents are reconciled with physical stock. Although it is an expensive method however, companies have to do it now in order to avoid any devastating situation.

Researchers also claim about the positioning of inaccuracy. Some argue that inaccuracy at downstream locations has a larger impact because of closeness to customers, inaccuracy at an upstream location affects the supply for everyone downstream locations. Likewise, one may dispute that maintaining accurate records at a location with an extended lead time is more important because such locations are slower to respond to demand changes. On the other hand, such locations generally have significantly more pipeline and protection stock, which implies that they might be affected less by record inaccuracy. Hence, it is not clear how inventory inaccuracy at different locations affects the supply chain performance and how a highly effective cycle-count insurance plan should be designed in a source chain.

The present paper aims to handle these questions about design of circuit count procedures.

Literature Review: This paper addresses an emergent issue of inventory record inaccuracy in supply chain. This is a very huge theme and numerous studies have been done so far in this field.

For any business it's important to maintain a minimum stock level because none of the business are able to exceed this level as it directly impact the delivery business lead time and makes customers disappointed. At exactly the same time, to keep count of inventory is equally important so the procurement team must be aware that at what time they have to replenish the stock.

Usually for this function, prior companies used to perform a "physical inventory" count up one per year of the stock item available in stock. After having done the count number, stocks in book of accounts are modified to really know what is absolutely available in stock rooms. However the condition used to reoccur very following day when at many events matters were found incorrect. To solve this, Cycle Counting is the most effective and widely used method in resource string management.

According to Chaneski (2000), Circuit Counting involves counting part of your inventory every day and many times per year. It is a method of inventory auditing that supplements your twelve-monthly physical inventory and, in some instances, replaces it. Circuit Counting gives you "real-time" information that will help you identify and correct inventory problems before they become popular.

Cycle Counting entails five steps:

  • Count a representative sample of specific parts. Critical items can be counted more often than less important items.
  • Once the count up has been used, compare it to the inventory records.
  • If the cycle count up and inventory records consent, you are in good shape. However, if there is a discrepancy, do not only change the inventory details! Instead, check out the discrepancy and discover the reason.
  • Once the reason or factors behind problems have been identified, teach warehouse employees on the conclusions.
  • Once causes are recognized and corrected, use Cycle Counting to make sure problems do not reoccur.

Cycle Counting has various advantages including provides more appropriate inventory records at any time and nurtures an environment of problem solving and continuous improvement via ongoing and preventive corrective action.

The right time to do the cycle count is throughout the day when material is not moving before or after normal working time. The opportunity of counting mistakes is reduced if Cycle Counting is conducted during these "off hours. There are a variety of ways to choose items to be routine counted. One technique ranks all parts by value and directs anyone to count the things with a big number of dollars moving through inventory more regularly than slower-moving products.

However Manuel, Gumrukcu, Buyurgan, and English (2007), suggested two-echelon cycle keeping track of approach which is the organized method of handling inventory inaccuracy at all levels. It really is nothing but keeping track of of a little group of items throughout a period with the objective of determine errors in the process, as well as identifying causes for inventory inaccuracy. It includes various methodologies, each having benefits and drawbacks. Usually the process has pursuing five basic steps of pattern counting:

  1. determining the things to rely,
  2. preparation for counting,
  3. counting the things,
  4. recounting variances,
  5. determining and documenting triggers.

Success of every method is determined by its careful execution.

Fleisch and Telkamp develop a simulation style of three echelon inventory system with one product to lessen the total resource chain cost and the stock out level. The research concludes that eliminating inventory inaccuracy can reduce the total supply chain cost and the stock-out level. Under the (Q-R) insurance policy, Kang and Gershwin [4] analysis two specific models of inventory systems as stochastic and deterministic. They discovered that if no correction is performed, even a little error can cause big influences on system performance.

References:

KЁok, A. G. , K. Shang. 2007. Inspection and replenishment procedures for systems with inventory record inaccuracy. Manufacturing Service Oper. Management. 9(2) 185-205

Rossetti, Manuel D, PhD. , P. E. , Gumrukcu, S. , Buyurgan, N. , PhD. , & English, John, PhD. , P. E. (2007). Inventory precision improvement via circuit keeping track of in a two-echelon source chain. IIE Annual Seminar. Proceedings, , 913-918.

ECR European countries. 2003. Shrinkage: A collaborative approach to reducing stock reduction in the supply

chain

Chaneski, W. S. (2000). Cycle counting can transform your inventory accuracy. Modern Machine Shop, 73(7), 52.

Fleisch, E. , Telkamp, C. , 2005, "Inventory Inaccuracy and Supply Chain Performance: A Simulation Analysis of a Retail Supply Chain, " International Journal of Development Economics, 95(3), 373-385.

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