Hubbell Policies

adjustments. Non-cycle count adjustments should not be made by cycle counters and should be reserved for individuals in operations.

• Miscellaneous Receipts & Disbursements – These adjustments should be accumulated by reason code (typically inventory movement type 501/502 in SAP) and reviewed monthly by the Business Unit Controller and the Operations Manager (or their designees). The purpose of the review is to ensure that the accuracy of the perpetual inventory records is not achieved by frequent correction of errors recorded as Miscellaneous Receipts or Disbursements by the location’s personnel.

B. Initial Certifications

For locations to become certified, the guidelines outlined within this Policy for cycle counting and the reporting of perpetual inventory accuracy must be established. The location should contact the Director, Internal Audit to request gaining cycle count certification. Assistance will be provided by Internal Audit to ensure the location implements the appropriate procedures and reporting requirements.

Prior to a location becoming eligible for an initial certification, 25 weeks of cycle count results must be established. See Exhibit A-2 for an example of a 25 weeks of accumulated cycle count data.

C. Cycle Counting Procedures

Written Procedures

Each location relying upon cycle counting in lieu of an annual physical inventory must develop and maintain written instructions documenting the local cycle counting program procedures. At a minimum, written procedures must be reviewed annually and include: • How the location addresses the cycle count program compliance requirements; • Outline of job responsibilities and roles for the cycle counter and other personnel assigned with administrative tasks associated with the accumulation of cycle count results, researching reconciling inventory transactions, perform miscellaneous audits, and preparation of the cycle count accuracy reports; and • Identification of key SAP t-codes used within the cycle count program and a description of how to use the identified t-codes to perform cycle count tasks.

Frequency of Cycle Counts

The frequency of cycle counts is determined for each part by using an ABCD distribution of inventory that is based on sales volume history or usage, to ensure that high-dollar volume items are counted more frequently than lesser-dollar volume items. "A" items must be counted four times throughout the year, "B" items three times throughout the year, "C" items two times throughout the year, and “D” once per year. SAP establishes a selection of parts to be counted based on each classification.

In order to ensure that the status of cycle counts is current, and the distribution of inventory is accurate, there are three procedures that management must perform at different intervals:

• A review of ABCD classification codes (in SAP, t-code MIBC) or some other method based on sales volume history or usage for the previous six months must be done at least semi-annually. This exercise is typically

63