The Cycle Count Plan That Does Not Fit the Hours
You are the inventory lead at a 6,000-SKU independent parts store. Policy sets A items (500 SKUs) counted monthly, B items (1,500 SKUs) quarterly, and C items (4,000 SKUs) annually. You have one trained counter and 6 scheduled hours per week for counting. An average count with bin verification takes 2 minutes, and travel, look-up, and paperwork add roughly 50% on top of that. Last month only 71% of A items were counted. Year-to-date shrinkage is $18,400 against a $9,000 budget, and $7,100 of it sits in three A-class fast movers that share one aisle. Cycle-count accuracy is 92% against a 98% target. The general manager proposes scrapping cycle counting and doing one full physical count a year instead.
1. Calculate the monthly and weekly counting workload the current policy requires, compare it with available capacity, and state what the numbers tell you.
Read the worked answer
Counts required per month
- A: 500 × 1 = 500
- B: 1,500 × 1/3 = 500
- C: 4,000 × 1/12 = 333
- Total ≈ 1,333 counts/month
Time per count: 2 min + 50% overhead = 3 min Time required: 1,333 × 3 = 3,999 min ≈ 67 h/month ≈ 15.4 h/week
Capacity: 6 h/week = 26 h/month = 26 × 60 ÷ 3 = 520 counts/month
You are funded for about 40% of the plan, and A-class counting alone (500 × 3 min = 25 h/month ≈ 5.8 h/week) would consume nearly the entire budget before a single B or C item is touched. The 71% A compliance is an arithmetic outcome, not an effort problem.
A workable response must change one of three variables: add hours, shrink the scope, or cut time per count (count sheets printed in bin sequence, count by location rather than by part number, scanner entry, two-person counts on the fast aisle).
2. Where do you focus the investigation of the $7,100 in three A-class lines, and what is your step-by-step plan before any adjustment is posted?
Read the worked answer
Focus on cause, not correction. Posting an adjustment makes the number right and the problem permanent.
Most likely causes for three fast movers in one aisle:
- Unit-of-measure error - bought in cases, sold in eaches; system still converts at the wrong factor.
- Look-alike part numbers in adjacent bins (one digit apart) - picks and put-aways swap.
- Returns or warranty replacements put back on the shelf without a receipt transaction.
- Unposted receiving or special orders - stock physically present but never received in the system, or picked to a will-call shelf and not invoiced.
- Theft or unrecorded counter sales on a high-value, easy-to-carry item.
Plan:
- Pull 90 days of movement for the three SKUs: purchases, receipts, sales, returns, adjustments.
- Blind-recount the bins (no system quantity shown) and search the aisle, will-call, returns cage, and back stock for the missing pieces.
- Check receiving documents and open POs against the count.
- Check the unit-of-measure and pack quantity fields in the item master.
- Interview the pickers and counter staff; check the no-pick/negative-on-hand exception report.
- Only after a cause is named, post the adjustment and record the reason code.
- Fix the mechanism: relabel the bins, separate look-alikes, add a check digit or barcode, correct the UOM.
3. How do you answer the general manager's proposal to replace cycle counting with one annual physical count?
Read the worked answer
Show the cost of the alternative.
Annual full physical: 6,000 counts × 3 min = 18,000 min = 300 hours, plus a stock freeze, overtime, a second shift of counters, and days of reconciliation. That is more labour than the entire year of cycle counting at current capacity - spent in one disruptive block.
The bigger problem is coverage: your A items would go up to 12 months without verification. A shrink rate that is currently $18,400 a year would run undetected for most of the year, and fast movers are exactly where errors compound, because a wrong on-hand on an 80%-of-sales SKU produces stock-outs within days.
Propose a compromise that fits the hours:
- A: top 250 by usage monthly (~12.5 h/month), remainder quarterly.
- B: semi-annual; C: annual or trigger-based (whenever a bin goes negative or a picker reports a miss).
- Add exception reporting - daily negative-on-hand, no-pick, and backorder-vs-stock reports - which catches most errors between counts and costs no counting hours.
- Report count accuracy and shrinkage monthly so the GM sees trend, not surprise.
If the GM still wants a wall-to-wall count for audit purposes, schedule it on a quiet Sunday and treat it as a check on the cycle-count process, not a replacement for it.