By David Lapp, Agricultural Process Engineer

Although our title could have you eye-rolling and feels like a redundant, “Yeah we know” type of comment, it is still an important and useful step. Sometimes revisiting obvious areas, like Inventory are necessary in order to have a better understanding of Controlling Inventory and its costs. The basis for control is knowing what – exactly – is in your bin or storage.

Manual Counts:

Knowing exactly what is in your bin or storage can be achieved through Bar Code Readers, Count Cards (tags on the bins) and even the basic count inventory sheets. However, these steps can be a painful process and a strong strategic plan would have to be developed in order to achieve a complete inventory.

If you are planning to use a manual inventory control to get an actual and complete snapshot of what’s in your bins and storage, you need a strategic plan to map out how you are going to do this. Our recommendation is to create two-person teams that are placed into the geographic areas of your facility to help with the counts. In addition, you will need to have a pre-counting plan in order to achieve your goal in the most effective way possible.

If you are going to use a manual count, the easiest way of doing this is to count all the seasonal products and get them out of the way first.

Here are some other useful tips for Manual Counts:

  • Pull out any inventory that is needed to fulfil current orders
  • Ship everything that is on order
  • Don’t move misplaced material while the count is taking place
  • Don’t fill any orders while the count is going on

The challenge with Manual Counts is that in order to get realistic counts you have to stop processing, which is not really achievable for processing companies.

Cycle Counting:

An alternative to Manual counting is called Cycle counting. This is a type of inventory control where a company spreads out their counts over the year to different areas that are value specific. In other words, we count the most valuable inventory first.

Schreibfeder indicates that companies count the larger dollar inventory that is flowing through the facility first, while counting the least moving inventory last. By using Pareato’s law or the 80/20 rule we can still capture the majority of the inventory in the facility.

So using Schreibfeder’s example :

  • A = 80% of Sales count the inventory 6 times per year
  • B= 15% of Sales count the inventory 3 times per year
  • C= 4% of sales count the inventory 2 times per year

The challenge found in cycle counts is that we do not really count at the busiest times of the year, and even with Cycle Counting we cannot get an accurate read on inventory and still may have to stop our processing in certain parts of the plant in order to complete cycle counts which ultimately makes cycle counting an unachievable option for processing companies.

What is the Solution? – Continuous Counting –

What is Continuous counting? In order to complete and implement continuous counting, companies must have the proper tools in place. The proper tools include: a software (workflow tool) to help with the receiving, processing and shipping out of the inventory while allowing companies to track and trace. In addition to: closing the inventory loop from grower to customer relationship, that will allow companies to know where their inventory is – at any given time – which will allow them to have better forecasting of their inventory.

Your company’s workflow is the material handling or material resource management and it can be part of your Enterprise Accounting system. This system really needs to be scalable with your business and with your processing as your company grows.

But the real success of the continuous count is to have the process in a closed-loop system that will allow full transparency. This means you can identify inventory that is destroyed due to rework, or inventory that is coming at lower grades into your facility. This can help you be more proactive and have less panic or uncertainty and help you to be more efficient in processing.

You will be stunned by how much money can be saved by managing your inventory, and this can be the basis of a strong foundation in Good Management Practices.

If you want to learn more, reach out to us…