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ABC analysis

and
Cycle Count
:Prepared by:

Anuj Mawadikar
Uday Shukla
Tushar Rajpal

Objective:

To make a new user aware about the concepts


of ABC analysis & Cycle Count.
To layout the process in brief regarding the use
of ABC analysis and Cycle Counting in Oracle
Inventory.

Inventory Record Accuracy:

Inventory Record Accuracy (IRA) is a measure of


how closely official inventory records match the
physical inventory.
Why IRA is important?

Inventory is often the largest consumer of capital for an


enterprise
Poor accuracy requires more inventory and capital
To overcome late deliveries and missed schedules
Stock outs also increase cost

Methods for Improving Inventory Accuracy


Physical Counting:
A physical inventory is a count of what is currently in stock in the warehouse,
comparing that count to what the computer thinks is in stock, and making any
necessary adjustments to get the computer counts to match the warehouse
counts.

Cycle Counting:
Cycle counting is a popular inventory counting solution that allows businesses
to count a number of items in a number of areas within the warehouse without
having to count the entire inventory. Cycle counting is a sampling technique
where count of a certain number of items infers the count for the whole
warehouse.

Cycle Counting:

A cycle count is an inventory management procedure where a


small subset of inventory is counted on any given day. Cycle counts
contrast with traditional physical inventory in that physical inventory
stops operation at a facility while all items are counted at one time.

Cycle counts are less disruptive to daily operations, provide an


ongoing measure of inventory accuracy and procedure execution,
and can be tailored to focus on items with higher value, higher
movement volume, or that are critical to business processes.

Advantages:

Cycle counting enables you to keep inventory records


accurate by correcting errors between the system onhand (perpetual) and actual on-hand (physical)
quantities.
Cycle counting can also be a valuable tool to help
identify patterns in the errors found.
Analysis of these patterns can suggest and help to
prioritize improvements in training, tools, and
processes.
Over a period of time these improvements may
increase the average level of IRA.

ABC analysis:

An Inventory Control Technique.


ABC analysis is a type of analysis of material
dividing in three groups called A-group items,
B-Group items and C-group items for the
purpose of exercising control over materials.

ABC analysis:
Criteria

A Type

B Type

C Type

Quantity

10 %

20%

70%

Value

70%

20%

10%

Control

Very Strict

Moderate

Less

Ordering

Daily/ Weekly

Monthly

Yearly

Safety Stock

Less

Moderate

High

Handled by

Senior Officers

Middle Mgmt.

Fully delegated

ABC analysis in Oracle Inventory:


STEPS:
Define ABC classes
Define and run an ABC compile
Define ABC assignment groups
Define ABC item assignments
Update ABC item assignments

Define ABC classes:

Navigation: Inventory > ABC Codes > ABC Classes

ABC compile:

Run ABC Descending Value Report:

ABC assignment groups:

Run ABC Assignment Report:

On the Assign ABC Item form, this report runs


automatically as soon as you press Assign.
This report has to be run again if Update Item
is used.

Cycle Counting:

STEPS:
Defining & Maintaining Cycle Counts
Generate Cycle Count listing
Enter Actual Quantities
Approve Adjustment

Defining Cycle Counts:

Assign ABC Classes to Cycle Count:

Observations:

The No. of Counts per Year for a particular class


is specified at Cycle Count.
12 times per year' does not necessarily mean that
the items will be counted in even increments, such
as per month, it just means 12 times throughout
the year.
The objective with Cycle Counting is to ensure
that no one knows which items are going to be
counted, this is a near-random process that is

Cycle Count Items:

Run Request:
Navigation: Tools > Cycle Count Scheduler

Navigation: Tools > Perform Full Cycle Count

Cycle Count Entries:

Findings:

The maximum number of items per class selected for


cycle count are calculated as:
Maximum Items to schedule per class = [ (Total Items in
the class * Counts Per year * No. of working days in
count frequency duration) / (No. of working days in the
year) ] +1
No. of working days in count frequency duration is
calculated as 1 if the Auto Schedule frequency = Daily
and 5 if Weekly (assuming the weekends are nonworking days as per the calendar attached to the cycle
count)

Example:
Auto Schedule Frequency
= Daily
No. of Items in class B
= 300
No. of counts per year for class B
=2
No. of working days in the year = 260

Example:

If the next date under the Auto Schedule is 10/26/2012


Perform Full Cycle Count is manually submitted on
10/26/2012
Result: the cycle count is generated for 3 items in class B
as:
[(300*2*1)/260] + 1 = 3
When the Perform Full Cycle Count completes, it
automatically updates the Next date as next working
calendar date and last date as current date.

Example:

The Perform Full Cycle Count has to be run on


10/27/2012.
But if it is not run because of some reasons
and then run directly on 10/31/2012, then the
cycle count is generated for 12 items in class
B as:
[(300*2*5)/260] + 1 = 12 items

Count Adjustment Approval:

Next Cycle Count Entries:

Count History:

Now what after Cycle Count:

We can take note of major discrepancies/ variances, analyze


reasons for the same and try to aim towards 100% accuracy.

Once the root causes are identified and are being dealt with for the
concerned items, and the Cycle Counting procedures have been
reviewed and are in place, the Cycle Counting program should be
expanded to include all of the inventory items.

We can also aim to eliminate periodic Physical Inventory Counts


once we achieve a high level of accuracy, say 95-97% depending
upon entity to entity.