cycle-countIn our prior article we discussed the method behind inventory cycle counting as a way to improve your company’s inventory accuracy.  There we briefly touched upon the most common cycle counting method, known as the “ABC” method.

But it’s worth noting that these cycle counts can be performed in several different ways, depending on things like location preferences or special criteria, as we are reminded in the Sep/Oct 2016 issue of APICS Magazine.  We’ll offer some of their other cycle counting method examples here today:

  1. The Zone Method: Particularly good for items with fixed locations. The count schedule starts with the first location in a zone and continues daily until the last location is reached.  Then, the count begins again at the first location.
  2. The Location-Audit Method: Best used when items are stored randomly. Here, a set number of locations is counted and their inventory counts are validated each day.
  3. The Special-Counts Method: Items are selected to be counted based on criteria such as negative or zero balances, shipment or receipt of items, fill shortages, etc.

These methods are among those suggested by David F. Ross in his article for APICS Magazine entitled Cycle Counting by the Probabilities, in the Sep/Oct 2016 issue now available to APICS members.

Inventory is one of the costliest items a business possesses.  We present this information as a service to our many manufacturing and distribution ERP clients because we know that inventory cost saved is ROI regained.  We’re happy to help others with inventory dilemmas, and are strong believers in the principles espoused by APICS in helping to improve our clients’ inventory and production capabilities, methods, profitability and overall success.


apics-coverManaging inventory in a fast changing environment is never easy.  That being said, many companies choose to engage in periodic partial inventory counts known commonly as ‘cycle counting.’  The idea is that by counting a select subset of your total inventory, you can keep tabs on the most critical or sensitive items without the time and effort required for a full inventory.

A recent article in APICS Magazine (Sep/Oct ’16 issue) reminds us that cycle counting is a closed loop process.  Done correctly, it is comprised of the following five steps:

  1. Assess the current state of inventory integrity and set target accuracy levels. Begin by validating that key elements like locations, procedures for receiving, put-away and picking, and transaction management are being done properly.
  2. Perform the cycle count. A select number of items are counted each day (or cycle).
  3. Track variance causes. Compare physical counts with book balances.  Investigate imbalances and assign reason codes for variances.  Drill down with warehouse managers to determine root causes, selecting items for recount as needed.
  4. Continue improving accuracy levels. Over time, inventory control must determine the accuracy of the items counted.  Obviously, the goal is to see accuracy rise as the cycle counting process takes root in the organization.
  5. Compare current and target accuracy levels. As tighter inventory accuracy controls are achieved, the likelihood of variances decreases as do the number of items that need to be counted.

Among several approaches to cycle counting, the most common is the ABC classification method.  As in: we count the “A” items first and most frequently, the “B” items next and less frequently, and the “C” items last (within a category or classification) and least frequently.  The ABC method has four key elements:

  1. Item classification: Separate items into groups based on your criteria, i.e., value or transactions
  2. Inventory accuracy targets: i.e., 98 or 99% for each classification
  3. Cycle count interval: when and how many items in a classification are considered complete?
  4. Probability of variance: the chances that an item will experience a discrepancy

Of course, the devil being in the details, the above is the desired process.  But when you factor in what can go wrong, unexpected variances and incomplete processes, it’s all easier said than done.  To drill down on that topic, you should read the full article – which requires that you be an APICS member.

Not a member?  We can help.  (Full disclosure: our client engagement manager is President of our local APICS chapter, and we’re an APICS Company of the Year in our area.  But we receive no financial benefit – we simply believe in their mission.  Contact us directly for information on how to become a member of APICS, or check them out here.


globalizationWe noted in our prior post the recent flattening in growth of the global trade of goods and services.  At the same time, we noted, according to Information Week, McKinsey and Trends eMagazine, among others, the global exchange of data is soaring, leading to a range of competitive advantages that we noted in the post.  Today, we look at what these same folks are saying about the impact this will have on companies, and why it matters to yours.  (Original source content can be found here.)

Following, then, are four key developments emerging from this trend:

  1. The successful companies of the next decade will be those that embrace digital globalization. McKinsey suggests 6 actions:
  • Reevaluate the need for physical locations when a website can be just as effective
  • Consider whether creating new offerings in different markets beats the same product in each
  • Decide whether to manufacture off-shore or locate close to the customer
  • Evaluate “monetizing assets” such as customer data to develop new products/services
  • Recognize the threat for industry disruption from competitors in emerging markets
  • Protect digital assets from hackers by keeping security software up to date; train employees
  1. Countries that impose limits on data flows will damage their own economies and deprive their citizens of the benefits of digital globalization.

Information Week notes that countries as diverse as Australia, Brazil and Greece have enacted policies that limit storage of data.  Over 100 nations have or are working on laws designed to prohibit personal data from moving across national borders – for varying reasons.  But, as Brookings Institution has found in a 2011 report, a 10% rise in a broadband penetration causes a 1.3% jump in economic growth.

  1. The Internet of Things will ignite an explosion of data flows. As this next state of the digital revolution unfolds, smarter devices, sensors, GPS and artificial intelligence “will revolutionize logistics, fleet maintenance, agriculture, healthcare and many other industries.”  According to Cisco, within 3 years, over 40% of data flows will be via machine-to-machine connections.
  2. The global trade in goods is unlikely to return to previous levels. American companies are re-shoring manufacturing operations back to the U.S.  As 3-D printing advances, companies “will create more products and intermediate goods as they are needed and where they will be used, rather than ordering from overseas suppliers.”

That’s the future of business and data globalization as defined by several of the world’s best prognosticators and subject matter experts.  While some of their advice is aimed at larger companies, industries, even countries… the lessons should not be lost on today’s small businesses.


globalizationAs we come to the end of September, 2016, there’s a lot of talk in this political silly season about the pros and cons of globalization, some of it regrettably uninformed, even while the underlying frustrations expressed by proponents of limiting globalization are both understandable and palpable.  So in our last two posts of this month, we take a quick look at why today’s business must embrace the digital future.

The growth of globalization, that is, the growth in the exchange of goods, services, people, money and data across national borders, has slowed down in recent years (this, according to the June, 2016 issue of Trends eMagazine).

This is not surprising given that the world has a finite number of people, limiting the number that can move from one country another.  And after all, we only need so many TVs, phones, t-shirts and pineapples.  There’s a limit to the number of goods that can be produced in one country and sold in another, note Trends’ editors.

But there is one type of exchange that is not finite: data.  According to Information Week, the amount of “online data exchanged across borders increased by a factor of 18 between 2005 and 2012.”  By 2025, it’s expected to increase another 700%.  And according to McKinsey all this data flow had a combined impact of over $2 trillion in value in 2014 – more than “global trade in products or foreign direct investment.”  And that cross-border data flow barely even existed in 2000.

Driving this trend of course is the enormous increase in bandwidth across borders, an increase of nearly 50 times in the past decade, and predicted (by McKinsey) to increase by another 900% in 5 years.  The benefits of these global data flows include:

  • Lower transactions costs: a customer in Europe downloads an e-book on Amazon and eliminates paper, shipping and wait times.
  • Global scope: The smallest company can now be an actor on the world stage, quickly and cheaply. There are 50 million companies with Facebook pages.
  • Empowerment of individuals: Free online courses… job postings… connections worldwide, etc.

In fact, McKinsey finds, global trade in goods, long the traditional creator of world wealth, has actually flattened in recent years.  That’s one reason companies are re-shoring their manufacturing — as higher labor costs in China, the need to respond more quickly to shifts in demand, and the opportunity to capture savings from shorter supply chains have all served to reduce cross-country trade lately.

Trends editors see all this as leading to four emerging developments that will be crucial to companies in the not so distant future.  We’ll take a look at all four in our next and concluding post on the revolution in global data exchange.  Stay tuned…

quantum_dilbertA recent article in Bloomberg BusinessWeek highlights the role that quantum mechanics will likely play as it comes to dominate our next generation of computing.  As Carl Sagan once observed regarding quantum phenomena, “common sense is almost useless in approaching it.”

Matter simply behaves differently – often far differently from what’s expected – at the atomic level.  And that’s an area that scientists are attempting to exploit for new applications in computing.  While a full-scale quantum computer is “years off” in Bloomberg’s view, a lot of progress is being made already in materials and designs – with potentially striking benefits.

The uniqueness of the quantum environment lies in the very properties of subatomic particles that can be simultaneously on and off.  That a thing could be in two states virtually simultaneously opens up a host of possibilities.  Those properties might well be exploited by chemists and drug designers, or by folks who try to solve ‘optimization’ problems – like air traffic control, improved artificial intelligence, better sensors and so on.

Big business, intelligence agencies and government have taken an interest for yet another reason: the breaking of codes.  Put simply, today’s cryptographic programs that protect our data are often derived from relying on very difficult math problems, like factoring large integers, that today’s computers can’t solve in a reasonable timeframe.  But with quantum computers, the speculation is that those codes might be cracked very quickly.

As a result, the underlying security of nearly everything from phones to e-commerce might be in jeopardy.  The Cloud Security Alliance, concerned about quantum computing’s ability to “break all public-key encryption now in use,” notes that “The impact on the world economy could be devastating.”

But let’s not panic just yet.  Because of course, other scientists are already working on “quantum-resistant” encryption.  Google is already on it, although more research is needed.

Businesses will continue to be warned about “being vigilant.”  Many files of a legal or business nature must be stored for a long time, for legal or commercial reasons.  Few businesses have a long-term strategy for protecting them, notes Bloomberg.  They urge greater cooperation between Silicon Valley and the government in laying the groundwork for cloud protection against such quantum crypto-vigilantes.

One could be forgiven for being skeptical of either the promise for cooperation or the technical abilities of the good guys to stay perennially ahead of the bad guys.  It’s bad enough now, what with cyber-crime at an all-time high.  One shudders to think what adding the new “quantum” dimension will do to add to our security woes.


[Dilbert Cartoon copyright 2012, Scott Adams, Inc.]

it-strategyToday we’d like to present a few warning signs — gleaned from our own experience as well as others’ — that your company’s I.T. strategy may not be what it should be…

  1. Is your IT strategy aligned with your overall business strategy? We see it all too often: customers want to buy “technology” for any of several perfectly valid reasons… or they view an I.T. investment as just a “computer” initiative.  In fact, the execution of any tech initiative should first and foremost be aligned with a well-defined business strategy that can be easily articulated by the folks in charge.  It’s that simple.  Sadly, too many firms don’t get that alignment right.  It’s about the business improvement strategy – bolstering the bottom line, eliminating redundant labor, leaning out production steps, and so on.  If your efforts don’t yield these kinds of rewards and results – don’t do it.
  2. Your current technologies are over a decade old. We’re all for making the best of what you have – we do it all the time.  No small business owner wants to waste money.  But at some point, the benefits and strategic advantages of new technologies will yield greater savings than what you’ll spend.  We find that barcode technology – properly implemented – is a perfect example of this.  The labor savings on a fairly modest investment can be huge.  The same for warehouse scanners and technology: while admittedly a much greater expense, the savings in labor, mistakes, on-time shipping accuracy and reduced waste can be surprisingly large.  Newer technologies – especially in software these days – can make those new tech investments pay for themselves in a year or two.  After that, it’s pure savings.
  3. Have you considered all your options? You don’t always need to rip out the old system and replace it with new.  Your initiative may not require a big new ERP system.  Instead, perhaps focusing on a strategic area, like customer relationship management (CRM) or business intelligence (BI) will yield greater bang for the buck.  And it’s always important to consider the people implications: starting with a business process review, and investigating the change implications to your organization are often big-bang (but relatively “low buck”) initiatives that can go a long way towards leaning out your operations (read: save money, time and waste) while keeping your people at their most productive.  ERP consultants are typically very skilled in this sort of thing, and the process can be done on a cost-effective, limited engagement.
  4. Do you have an actionable implementation plan? Once you know what your I.T. initiative will (or should) look like, have you defined a useable and actionable plan by which to implement?  It’s great if you’ve started by considering strategy and direction – just be sure you follow the business picture (and the people considerations) all the way through implementation.
  5. Does your IT strategy meet your ROI requirements? You wouldn’t execute an I.T. initiative without a cost/benefit analysis, right?  It’s not rocket science, but with a little effort you, or a decent consultant, should be able to scope out the relative return on your tech investment.  Odds are there’s still a lot of low-hanging fruit in your organization.  But much as it sounds like an old salesman’s line, it’s really true in a lot of cases: It doesn’t cost, it pays.  Don’t be afraid to make a tech investment in more modern tools – the payoff is often terrific.  Just make sure you follow our cautions above, first.

apicsInventory turnover is a constant business concern and “a powerful marker,” as noted in the latest issue of APICS Magazine (in an article entitled “Don’t Alienate Your Inventory Managers,” Sept/Oct ’16).

Inventory turns, typically defined as a company’s annual cost of sales divided by the average dollars in inventory, is important when comparing one’s business to its industry sector, as well as for measuring internal trends and for setting efficiency benchmarks internally.

But the calculation, points out authors Randall Schaefer and Deb Smith, can be deceiving and based on questionable assumptions.  As they note, some managers believe that less inventory is better, but that’s not always the case.  Other metrics often apply: Should safety stock always be reduced?  Can obsolete inventory be immediately written off?  In other words, are you distinguishing among the various functions of inventory?  How about a product launch — where inventory increases prior to initial shipments, but turns-targets are rarely adjusted?

But the most “egregious assumption” the authors note, “is that inventory managers can be fully responsible for increasing inventory turns.”  The fact is, companies have order policies and lead times that are often determined by others.  Buying in volume quantities or during pricing specials can cause inventories to spike beyond the control of the inventory manager.  Maybe certain large items must be received early for a quality inspection.  Holding managers accountable for these and a host of other inventory items that are beyond their control can seem unfounded.

The point is: “A company’s inventory management function never needs more than the exact requirement on the day of consumption.  Anything greater is someone else’s doing.”  But this is seldom recognized by management who continue to hold inventory managers accountable.

The answer, the authors propose, is that “inventory turnover metrics can be useful if parts subject to similar order policies are grouped and inventory turns responsibility is assigned to the person or group demanding those order policies.”  Simply put, employees must be in control of improving inventory turns on parts for which only they have established minimums, multiples, periods of supply and lead times.

Buyers can work on improving turns that are subject to their ordering policies.  Engineers should reduce setup times to enable smaller lot sizes.  Forecasters can work on improved accuracy to keep safety stock requirements down.

It’s a team effort, in other words.  And fairly accountable.

(And for more information about improving your inventory turns — or for information about how to connect with APICS — just comment here.  We are proud to be a past recipient of the APICS Company of the Year award — we believe in their educational mission, and will be happy to provide anyone with information about the many benefits of APICS membership.)