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Copyright (c) 2023, Oracle. All rights reserved. Oracle Confidential.

Understanding Cycle Counting and Physical Inventory (Doc ID 2301434.1) To Bottom

Modified: Nov 22, 2019 Type: FAQ

In this Document

Purpose
Questions and Answers
  Physical Inventory Definition
  Physical Counting Flow
  Physical Counting Approach & Troubleshooting Tips
  Cycle Counting Definition
  Cycle Counting vs. Physical Counting
  Cycle Counting Process - ABC Analysis
  Cycle Counting Process - Major stages
  Cycle Counting Approach & Troubleshooting Tips
References

APPLIES TO:
Oracle Fusion Inventory Management Cloud Service - Version [Link].0 and later
Oracle Fusion Inventory Management - Version [Link].0 and later
Information in this document applies to any platform.

PURPOSE
 This document is aimed to provide information on the Physical Inventory vs. Cycle Count, process flow, setup and troubleshooting.

QUESTIONS AND ANSWERS

Physical Inventory Definition

Physical inventory is a process where a business physically counts its entire inventory.
A physical inventory may be mandated by financial accounting rules or tax regulations to place an accurate value on the inventory. A physical inventory is performed on a
periodic basis to evaluate and reconcile inventory quantities and values.
The physical inventory process requires the inventory organization to suspend incoming and order fulfillment activities for the time it takes to conduct the physical inventory.

Note:
Because revenue-generating processes are halted for the duration of the physical inventory, it is important to perform the required process steps sequentially and
efficiently to complete the process in a timely manner. As important as it is to complete the process quickly and efficiently, it is equally important to provide thorough and
accurate counts so the company’s financial picture is represented correctly.

Physical inventory allows you to get an accurate count of stock and identify count variances. It also lets you determine an accounting value for the entire on-hand inventory.
It is a periodic reconciliation of system on-hand balances with physical counts in inventory. You can perform a physical inventory for an entire organization or subinventories
within an organization.

A physical inventory is typically performed once every six months or once a year, depending on the organization requirements.
 

Physical Counting Flow

1. Generate Physical Inventory Snapshot
2. Generate Physical Inventory Tags
3. Record Physical Inventory Tags
4. Enter Physical Counts
5. Approve Physical Inventory Adjustments
6. Post Physical Inventory Adjustments.
Check below document for more details on the flow:
FUSION INV - Tag Count Overview (Doc ID 1330018.1).
 

Physical Counting Approach & Troubleshooting Tips

• When a particular physical inventory tag count entry exceeds any tolerance limit, a physical inventory adjustment is needed.
• If adjustment is not available in the list on the Physical Inventory Adjustments page, the adjustment for the item may be within tolerance. To view all adjustments, you can
expand the search panel on the Approve Physical Inventory Adjustments page and select All as the criteria for the Display Adjustments field.
• In the event that inventory transactions mistakenly occur after the physical inventory snapshot is taken, it is important to identify the impact of the transaction to the
physical count and reconcile the count prior to running the Post Physical Inventory Adjustments process.
• As per the Physical Inventory (PI) process, there should be no transactions performed between the freeze date and the adjustment date. If there are any transactions, PI
should not post any adjustments for those items.
• Before posting physical inventory adjustments, all physical inventory tags must be entered or voided, and all out of tolerance adjustments must be approved.

Warning:
All inbound and outbound activities must be stopped while taking the snapshot.

Check below document for more details and troubleshooting tips:

Fusion INV: Common Problems and Solutions - Perform Physical Inventory Count (Doc ID 1471555.1).
 
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Cycle Counting Definition

Cycle counting is an inventory accuracy ©analysis
Oracle technique
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schedule rather Support
than once a year to ensure the accuracy of inventory
quantities and values.

Inventory accuracy helps in avoiding frequent disruptions in production operations due to missing items and, at a high level, ensures higher level of customer satisfaction by
delivering orders as planned. The frequency of counting items depends on criticality of item, cost of the item, lead time of the item, and also past stock movements of the
item.
Adding items to a cycle count can be done manually or automatically.
Items can be manually added to a cycle count by searching for and selecting the desired individual items. You can create a manual cycle count schedule in addition to, or
instead of, creating an automatic cycle count schedule. You can create a manual schedule to add an additional count for a particular item if you want to count the item more
frequently than the automatically scheduled counts require.
Items can be automatically added to a cycle count by selecting an ABC assignment group. All of the ABC assignment group's items are added to the cycle count. Usually,
ABC classification of items becomes the basis for deciding the count frequency with A class items being counted more frequently compared to B or C class items.

Note:
The recommended practice is to plan the cycle count program in such a way that you count certain items or locations daily without disrupting normal operations.

Cycle Counting vs. Physical Counting

Cycle Counting is not the same as performing a Physical Inventory. Cycle Counting is performed on a continuous, ongoing basis whereas a Physical Inventory is performed
periodically.
The major difference between the two actions is that a Physical Inventory is usually an annual event in which staff is well aware of the process, and which items are going to
be counted.
Floor staff and line workers are usually well aware of when a Physical Inventory is going to be performed, and which items are going to be counted.
Cycle Counting can be set to mimic performing a Physical Inventory by setting the number of counts per year equal to the total workdays in the workday calendar (usually
about 260). But this is still not the same process and is not intended to be a Physical Inventory.
The objective with Cycle Counting is to ensure that no one knows what items are going to be counted, this is a near-random process that is generated by the Application, it
does not offer precision.

Note:
The idea of offering precision would go against the intended functionality, cycle counting is used to discover missing items in a sudden fashion without warning to on-site
staff as to which items are going to be coming up for count and how many.
The reason for this is to approach internal compliance and asset control by observing asset detection from the angle of random testing, especially when this pertains to
high-value items found within the Class A of a corporation's assets.

Cycle Counting Process - ABC Analysis

ABC Classification is an inventory categorization technique that provides a mechanism for identifying items that will have a significant impact on overall inventory cost in the
organization. The basic objective is to focus on high volume / high value items.

ABC analysis determines the relative value of a group of inventory items based on a user-specified valuation criterion. "ABC" refers to the rankings you assign your items as
a result of this analysis, where "A" items are ranked higher than "B" items, and so on.

Note:
ABC analysis method for classifying and analyzing inventory relies on Pareto's Law. In a typical scenario, it is noticed that about 10% of the items constitutes 60% of the
consumption, and about 40% of the items constitute 30% of the consumption and remaining 50% of the items constitutes 10% of the consumption in terms of value. If
users have control on 10% of the items, then they would be able to control nearly 60% of cost in terms of holding, consumption etc.
Oracle Fusion Inventory Management also provides the flexibility to the Warehouse Managers to maintain more or less number classes, depending on the business
requirements.

The inventory items are selected (based on various parameters) constituting an ABC Classification Set. These items are valued (cost of the item multiplied by quantity) with
the results then ranked in decreasing order of their dollar value.

Different categories of stock require different management and controls. Items can also be ranked by quantity or historical order value. The results are then grouped (called
ABC Assignment Group) typically into three Classes: Class A, Class B, Class C.
Here are some purposes ABC classifications can be used for:
Cycle-counting frequency: More valuable A items should be counted more frequently than B or C items.
Engineering Priorities: The identification of A and B items help guide engineering when it seeks cost-reduction improvements on certain items. Efforts are better spent on
items with high cost or usage than on items with very low value or usage.
Purchasing priorities: Purchasing activities should concentrate on high cost and high usage raw materials in much the same way that engineering priorities are determined,
with the focus on A items for sourcing and negotiating.
Security: ABC analysis may be used as an indicator of which items should be more closely secured in locked storerooms to protect against loss, spoilage, or pilferage.
Replenishment systems: It is often more economical to control C items with simple replenishment systems. More sophisticated systems are generally employed for A and B
items.
Investment decisions: Because A items represent a larger investment in inventory, more care should be taken when making decisions about order quantity and buffer
stocks, than with B and C items.
 

Cycle Counting Process - Major stages

1. ABC analysis setup
- Create ABC Class definitions
- Create new ABC Classification set
- Create the Assignment Group
- Assign Classes to group
- Assign the quantitative breakpoint between classes.

Note:
The percentage value is always shown as cumulative, so if more than two classes are in use, the percentage value would delimit a breakpoint at that cumulative value
defined.

2. Cycle Count setup

- Create Cycle Count
- Enter Count name and Description, Select Subinventory
- Define Items and Classes
- Define Schedules and Approvals
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- Set Frequency, Workday Schedule and Approval Required
- Enter Starting Count Sequence and Maximum suggested Days Late
3. Generate Count Schedules and Count Sequences
- Select the created count
- Run ‘Generate Count Schedules’ process.
- Run ‘Generate Count Sequences’ process
- Check the generated Count Sequences
- Approve Count Sequences needing approval
- After the approval process is completed and the adjustments are processed, the cycle count activity is complete.
 

Cycle Counting Approach & Troubleshooting Tips

• Only cycle count enabled items are eligible for counting.
• If there is no on-hand for the items, then cycle count process does not schedule these items unless they would have specified Item-Subinventory relationship from the item
setup.
• Make sure all items in the ABC group are cycle count enabled.
• When attaching Classes to a Cycle count, make sure that you have entered an appropriate number (by class) for the number of times you want the items in that class
counted.
• If Class counts per year is 52, then set the Count Schedules frequency as 'Weekly'. (OR) Set the ABC Classes counts per year is more than 300 (not more than number of
working days in a calendar year), then set the Schedules count frequency as 'Daily'.

Note:
• If cycle count frequency is set to 'Daily' and class count classes frequency is set to low value, users will see few items as per this setup. Users will need to increase the
class count frequency as per requirements of the business.

• Ensure that Calendar is setup and that the date out far enough into the future.
• Set the workday calendar end date more than a year from the current date or from the sysdate. Ensure that correct start and end dates are given. If there are items with no
value due to (quantity * cost), since the value for these items is Zero, they may not be eligible for counting.
• Cycle count will not always schedule all the items, selection of the items depends on the cycle count 'counts per year' value, number of working days in the year.
• While not hard-coded into any Cycle Counting logic, in general there is a working assumption that a workday calendar consists of 260 days in the year.
• The calendar defined in the "counts per year" starts with the count is reinitialized, not when the calendar year or fiscal year ends. Therefore, if items are added, Cycle
Counting functionality does not increase to get those items counted before calendar year or fiscal year end.
• If the objective is for certain items in a subinventory to not be counted (i.e., items with nominal value) then those items should not be cycle-count enabled.
• Functionality does not accept creation of a class of items that are not to be counted and set the number of counts to year to zero. The idea of zero counts per year defies
normal functionality of Cycle Counting, it is like dividing a number by zero, you get undefined. This can produce unusual results.
• When implementing cycle count, focus can be given on A and B class items for more frequent checking, thereby ensuring accuracy of inventory to a large extent with C
class items counted once in a year.
• Do not define an ABC class for a subinventory that is non-quantity tracked.
• ABC analysis is the most current way to ensure stock accuracy and effectiveness, used either in cycle or physical counting, mostly to sort out valuable items and their
stock (value based), or heavily used items (turnover) as you should rely on inventory stock figures for most of daily operations.
• If the objective is for certain items in a subinventory not to be counted (i.e., items with nominal value) then those items should not be cycle-count enabled.
• If there are items with no value due to (quantity * cost), since the value for these items is Zero, they may not be eligible for counting.
• The calendar defined in the "counts per year" starts with the count is reinitialized, not when the calendar year or fiscal year ends. Therefore, if items are added, Cycle
Counting functionality does not increase to get those items counted before calendar year or fiscal year end.
• Cycle count will not always schedule all the items, selection of the items depends on the cycle count 'counts per year' value, number of working days in the year.
• While not hard-coded into any Cycle Counting logic, in general there is a working assumption that a workday calendar consists of 260 days in the year.
• The number of counts per year is the MINIMUM number of times that the item will be counted, so the minimum number of counts that the Application will perform on the
item, not the exact or maximum number.
• The counts per year for a class ensures that all items in that class are scheduled at least that many items in a year.
• The counts per year for a class can be changed by the user at a later point in time. Cycle counting does not take into account the number of counts that have already been
done before the change of value for 'counts per year'. It now takes into account the new value of 'counts per year' for all the items in the class.
• In cases where you have very few items in the class and have high count frequency (say Daily), there are chances that it will be counted more number of times, then
specified in its class. However, in those cases you would ideally like to reduce the count frequency (say, from 'daily' to 'weekly').
• You cannot approve a cycle count adjustment if the quantity being adjusted has reservations or allocations against it. A message is displayed indicating that you cannot
approve this count sequence adjustment because reservations or allocations exist for the item.
Check below document for cycle counting common problems and solutions:
Fusion INV: Common Problems and Solutions - Manage Cycle Counting (Doc ID 1392372.1)

REFERENCES
[Link]
NOTE:1471555.1 - Fusion INV: Common Problems and Solutions - Perform Physical Inventory Count
NOTE:2144175.1 - Fusion INV: Physical Count Adjustment is Posted but Transaction in Pending Status
NOTE:1330018.1 - FUSION INV - Tag Count Overview
NOTE:1392372.1 - Fusion INV: Common Problems and Solutions - Manage Cycle Counting
[Link]
▼ Related
Products

Oracle Cloud > Oracle Software Cloud > Oracle Enterprise Resource Planning Cloud > Oracle Fusion Inventory Management Cloud Service > Inventory > Physical Inventory

Oracle Fusion Applications > Supply Chain Management > Logistics > Oracle Fusion Inventory Management > Cycle Counts > Manage Cycle Counts

Oracle Cloud > Oracle Software Cloud > Oracle Enterprise Resource Planning Cloud > Oracle Fusion Inventory Management Cloud Service > Inventory > Cycle Counts

Oracle Fusion Applications > Supply Chain Management > Logistics > Oracle Fusion Inventory Management > Physical Inventory > Manage Physical Inventories

Keywords
CREATE CYCLE COUNT; PHYSICAL INVENTORY
Errors
INV_CNT_CANNOT_APPROVE_ADJ

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