Inventory count discrepancy: investigate a cycle count variance

Cycle count variance flowchart: blind recount, cut-off, unit of measure, wrong location, receiving errors and theft, then approve the adjustment.

Inventory count discrepancy: investigate a cycle count varianceInventory ControlCounterSupervisorManagerCONFIRM THE VARIANCEFIND THE CAUSEAPPROVE THE ADJUSTMENTPREVENT IT HAPPENING AGAINYesNoYesMatches the first countMatches neitherYesNoYesNoYesNoYesNoYesNoUnder your limitOver your limitYesNoCycle count doesn't matchthe systemFor warehouse and stockroomteams. Works a cycle count variancethrough recount, root cause,approved adjustment and prevention.Common practice drawn from GAO'sinventory count best practices anduniversity and state procedures.Every tolerance and limit shown is anexample.Is the variance within yourtolerance?Example tolerances: zero forhigh-value or sensitive items, and 3to 5% of quantity or a dollar limitsuch as $100 for the rest. GAO foundleading sites using ranges like these.Adjust to the count and log areason codeSmall variances under tolerance areusually adjusted without research.Still record them so trends show up.Freeze the location andrecount blindUse a different counter from the firstcount, and don't show them thesystem quantity. Recount the sameday if you can.Stop picks and putaways in thatlocation until the recount is done.Does the recountagree with thesystem?First count was wrong. Closewith no adjustmentNote why the first count was off,such as a missed case or amiscounted pack size, and coach thecounter.Variance confirmedDo a third count with asupervisor presentCheck open transactions andcut-offLook for receipts put away but notentered, picks shipped but notconfirmed, transfers in transit, andreturns waiting to be processed atthe time of the count.Pull the item's transaction history forthe days around the count.Did an unpostedtransaction explainit?Post the missing transactionand recheck the balanceFix the record with the realtransaction, not a count adjustment,so the history stays accurate.Check the unit of measureCompare the counted unit with thesystem unit. A case of 12 entered as 1,or one each counted as a box, makeslarge, round-number variances.Is it aunit-of-measureerror?Fix the unit or conversion inthe item recordSearch nearby and overflowlocationsCheck neighboring bins, overflowand staging areas, and items withsimilar SKUs or packaging. Countevery location that holds the item.Did you find thestock in anotherlocation?Transfer it to the rightlocation in the systemA location error isn't a loss. Move thestock in the system and relabel thebin if the label caused it.Review the receiving recordsCompare the vendor packing slip, thereceiving report and the purchaseorder. A short shipment received ascomplete is a common cause.Was it a receivingerror?Correct the receipt andnotify accounts payableAP may have paid, or be about to pay,for stock that never arrived. Ask thevendor for a credit.Look for damage, scrap ortheftCheck damage logs, scrap andspoilage records, and securityreports. Look for patterns on itemsthat are small, valuable or easy toresell.Is theft suspected?Refer it to security andmanagementDon't confront anyone. Keep thecount sheets, transaction history andany camera footage.Record the cause asunexplainedPrepare the adjustment witha reason codeRecord item, location, systemquantity, counted quantity, value andreason. GAO found leading sitestracked about 22 error codes, suchas receipt error, wrong location andpicking error.What is the value of theadjustment?Example limits: supervisor up to$1,000, manager above that. Approvalshould move up as the dollar valuerises.The person who counted orresearched the variance should notapprove it.Supervisor approves theadjustmentManager approves theadjustmentPost the adjustment in theinventory systemHas this cause comeup before on thisitem or area?Fix the process behind itExamples: retrain receiving staff,relabel locations, add a scan atputaway, or count the item moreoften.Log it and watch the trendClose the variance andreport it to financeIf total adjustments are large,consider a full count. One universityprocedure suggests a full countwhen cycle count adjustmentsexceed 10%, and asks managementto explain adjustments over 5% oftotal inventory.

Confirm the variance

  1. Cycle count doesn't match the systemInventory Control

    For warehouse and stockroom teams. Works a cycle count variance through recount, root cause, approved adjustment and prevention.

    Common practice drawn from GAO's inventory count best practices and university and state procedures. Every tolerance and limit shown is an example.

  2. Is the variance within your tolerance?Inventory Control

    Example tolerances: zero for high-value or sensitive items, and 3 to 5% of quantity or a dollar limit such as $100 for the rest. GAO found leading sites using ranges like these.

  3. Adjust to the count and log a reason codeInventory Control

    Small variances under tolerance are usually adjusted without research. Still record them so trends show up.

  4. Freeze the location and recount blindCounter

    Use a different counter from the first count, and don't show them the system quantity. Recount the same day if you can.

    Stop picks and putaways in that location until the recount is done.

  5. Does the recount agree with the system?Counter
  6. First count was wrong. Close with no adjustmentCounter

    Note why the first count was off, such as a missed case or a miscounted pack size, and coach the counter.

  7. Variance confirmedInventory Control

    Then go to step 9, Check open transactions and cut-off

  8. Do a third count with a supervisor presentSupervisor

    Then go to step 5, Does the recount agree with the system?

Find the cause

  1. Check open transactions and cut-offInventory Control

    Look for receipts put away but not entered, picks shipped but not confirmed, transfers in transit, and returns waiting to be processed at the time of the count.

    Pull the item's transaction history for the days around the count.

  2. Did an unposted transaction explain it?Inventory Control
  3. Post the missing transaction and recheck the balanceInventory Control

    Fix the record with the real transaction, not a count adjustment, so the history stays accurate.

  4. Check the unit of measureInventory Control

    Compare the counted unit with the system unit. A case of 12 entered as 1, or one each counted as a box, makes large, round-number variances.

  5. Is it a unit-of-measure error?Inventory Control
  6. Fix the unit or conversion in the item recordInventory Control

    Then go to step 25, Prepare the adjustment with a reason code

  7. Search nearby and overflow locationsInventory Control

    Check neighboring bins, overflow and staging areas, and items with similar SKUs or packaging. Count every location that holds the item.

  8. Did you find the stock in another location?Inventory Control
  9. Transfer it to the right location in the systemInventory Control

    A location error isn't a loss. Move the stock in the system and relabel the bin if the label caused it.

  10. Review the receiving recordsInventory Control

    Compare the vendor packing slip, the receiving report and the purchase order. A short shipment received as complete is a common cause.

  11. Was it a receiving error?Inventory Control
  12. Correct the receipt and notify accounts payableInventory Control

    AP may have paid, or be about to pay, for stock that never arrived. Ask the vendor for a credit.

  13. Look for damage, scrap or theftInventory Control

    Check damage logs, scrap and spoilage records, and security reports. Look for patterns on items that are small, valuable or easy to resell.

  14. Is theft suspected?Inventory Control
  15. Refer it to security and managementManager

    Don't confront anyone. Keep the count sheets, transaction history and any camera footage.

    Then go to step 25, Prepare the adjustment with a reason code

  16. Record the cause as unexplainedInventory Control

Approve the adjustment

  1. Prepare the adjustment with a reason codeInventory Control

    Record item, location, system quantity, counted quantity, value and reason. GAO found leading sites tracked about 22 error codes, such as receipt error, wrong location and picking error.

  2. What is the value of the adjustment?Inventory Control

    Example limits: supervisor up to $1,000, manager above that. Approval should move up as the dollar value rises.

    The person who counted or researched the variance should not approve it.

  3. Supervisor approves the adjustmentSupervisor

    Then go to step 29, Post the adjustment in the inventory system

  4. Manager approves the adjustmentManager
  5. Post the adjustment in the inventory systemInventory Control

Prevent it happening again

  1. Has this cause come up before on this item or area?Inventory Control
  2. Fix the process behind itInventory Control

    Examples: retrain receiving staff, relabel locations, add a scan at putaway, or count the item more often.

    Then go to step 33, Close the variance and report it to finance

  3. Log it and watch the trendInventory Control
  4. Close the variance and report it to financeInventory Control

    If total adjustments are large, consider a full count. One university procedure suggests a full count when cycle count adjustments exceed 10%, and asks management to explain adjustments over 5% of total inventory.

Outcomes

Adjust to the count and log a reason code

Small variances under tolerance are usually adjusted without research. Still record them so trends show up.

You get here from step 2, Is the variance within your tolerance? (Yes).

First count was wrong. Close with no adjustment

Note why the first count was off, such as a missed case or a miscounted pack size, and coach the counter.

You get here from step 5, Does the recount agree with the system? (Yes).

Post the missing transaction and recheck the balance

Fix the record with the real transaction, not a count adjustment, so the history stays accurate.

You get here from step 10, Did an unposted transaction explain it? (Yes).

Transfer it to the right location in the system

A location error isn't a loss. Move the stock in the system and relabel the bin if the label caused it.

You get here from step 16, Did you find the stock in another location? (Yes).

Correct the receipt and notify accounts payable

AP may have paid, or be about to pay, for stock that never arrived. Ask the vendor for a credit.

You get here from step 19, Was it a receiving error? (Yes).

Close the variance and report it to finance

If total adjustments are large, consider a full count. One university procedure suggests a full count when cycle count adjustments exceed 10%, and asks management to explain adjustments over 5% of total inventory.

You get here from step 31, Fix the process behind it, step 32, Log it and watch the trend.