Proven Advantages Which Defines the Purpose of Stocktaking for Your Business
21 Apr

Importance of Stocktaking – 7 Proven Advantages Which Defines the Purpose of Stocktaking for Your Business

In last 13 years, I have been conducting stocktaking every year. When I started as a graduate I was not really aware of the purpose of stocktaking or importance of stocking. I was more interested in weekend work extra overtime being paid!

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Now over the years, I have learned lot more advantages of stocking, rather than just financial.

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Purpose of Stocktaking


In general, the keyword when understanding and implementing Stocktaking or Inventory Checking is the word Counting.

That is essentially the long and short of it!

Simply put, it is the process of physically counting the actual stock you have on your site(s). Apart from your business address, sites can also include any storage or warehouse facility you may own or are renting.

So, do you really need a blog to tell you that counting the stock is good even though technically you would already know your stock levels when you order you items/materials/parts as you have specified the quantities ordered and received?

Well no, but I think you have gathered by now, that it’s a little more than that!

What is Stocktaking?

Stocktaking is the process of counting the actual physical stock and checking the numbers against the numbers you have on your books.

There are many reasons ranging from damage of products in storage (leakages/damage in transit) to items returned in unsatisfactory condition for resale and theft of stock that the numbers in your records may not necessarily correlate to current actual stock you have on your premises.

Although the process of stocktaking will cause a little disruption in the running of the business during the day(s) you conduct it, I believe, it is a minimal sacrifice due to the many advantages it provides.

A stocktake will identify any issues that arise in a loss of stock as well as offer data to conduct your own regular product performance analysis so as to maximise gross profit margins.

In this blog I will talk about what I believe to be the advantages of carrying out regular stocktake or importance of stocktaking. Please refer to my The Ultimate Guide to Creating Your Very Own Customised Stocktake Procedure for your step-by-step guide to developing your very own Stocktaking Procedure for your business.

So, without further ado, here are what I believe are my 7 advantages which explain the Importance of Stocking:

1.      Increases Profit whilst Reducing loss and waste


Yes, you really can increase profit margin by getting a realistic view of what you have, what is selling and if things are going wrong to capture them at the earliest opportunity.

Stocktake is the physical counting of all stock and matching it against the stock numbers you have recorded in your books/software.


2.      Providing Accurate Stock Records of which products are performing well and which are not


The accuracy and regular process of stock-take will help with making an informed, data-backed decision to invest in the right products, as it will show you which products are selling and which are not and therefore what to invest in.


You will also be able to see if there is a dead stock that you should think about possible flash sales to shift the stock. Although it will obviously mean that you will be selling at a lower profit margin, it is much better to settle for that than letting the stock sit there taking up valuable warehouse/storage space and reduce inventory.


During my days as SCM manager, I used to put all dead and slow-moving inventory in one area of the warehouse to show how much value space dead or slow-moving inventory is occupying. One of the key purpose of stocktaking is to physically go and see the dust of the dead and slow-moving inventory, again emphasising better inventory reduction strategies.

3.      Getting your Assets Right on the balance sheet.


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Inventory is the balance sheet entry as an asset, hence, very important for our accounting and finance friends. This number has to be as accurate as possible, which alone emphasise the importance of stocktaking.


The data you will be collecting and updating as a key purpose of stocktaking has a direct financial impact has ‘asset gain’ or ‘asset loss’ (also known as shrinkage). This is the reason why the accuracy of inventory value is subject to all internal and external financial audits, you like it or not!


4.     Monitor Real-Time Stock Levels – Identify Shrinkages, Damage, and Theft


The data of the Stocktake will clearly be the most up-to-date check and cross-reference data of what you have to what you should have and what you actually have.


Unfortunately, theft and damage can occur– the stocktake will uncover these as discrepancies and allow you to be proactive and responsive to this unfortunate reality in a timely manner, again showing the importance of stocktaking for a business.



A regular stocktake can be a positive deterrent to staff theft as the knowledge of these regular checks.


If the investigation into discrepancies shows there’s a shoplifting issue that is not a ‘one-off’ occurrence, a review of current store security will be necessary. You may have to invest in more robust measures such as better quality tagging and closed-circuit cameras to allow for better capture and prosecution of offenders thus sending out a message to other would-be shoplifters of the consequences of the high chance of getting caught.


Stock Damage

In terms of stock damage, the stocktake will highlight where and why stock damage is taking place.

For instance, detecting and promptly fixing a storage facility/warehouse leak prevents additional items from incurring the same damage.

If a stocktake did not take place, you will naturally assume all your stock is in saleable condition, so when you go to retrieve an item for sale or have a customer request it, you discover at the last moment that you cannot sell it and have to turn the customer away.


For specialty businesses, retaining customers who are willing to wait is rare. In most cases, you may lose that customer to competitors.

By conducting a regular stocktake, a damaged stock would have come to light sooner with steps taken to:


  • Identify and put into place preventative steps for future preservation of stock
  • Order replacement stock in good time to prevent loss of custom


This advantage alone is enough to fulfill the purpose of stocktaking for any small or large organisation.

5.      Monitor Seasonal Stock and stock with Expiry Dates in a timely manner


Time is essential when it comes to seasonal and stock with expiry dates, simply because they are time restricted.

So, Monitor and prioritize selling this stock type before potential markdowns are necessary.

If you do not maintain an importance of stocktaking, you will not know what you have and this will lead to a loss of gross profit not only in the direct sales as expired or obsolete stock may need to be thrown away but also in the cost of warehouse / storage if you are unaware and so this stock is taking up the space you could release for new stock.

6.       Review Pricing Strategies keep Up to Date with your current Purchase Prices


Through stocktaking, monitor purchase prices at stocking against the latest prices to track market changes and their impact on margins.

It may be that there are certain times in the years when the purchase prices rises and so will be able to make a calculated decision based on your sales report generated from the stocktake if it would be worth making an earlier investment than originally planned. It will also give you an idea if you should be looking at the pricing of your products.

7.       Catch up on 5S of the Factory and Warehouse


I mostly plan stocktake during weekends. Considering importance of stocking, it was fixed a year ago! Andwe have only 48 hours to get the whole thing done! This is only possible by maintaining high standards of 5s in the factory and in the warehouse. As a preparatory action, I directed troops. They invested extra hours to achieve high 5S scores for the factory and warehouse.

Stocking and validating stocktaking importance aim to organize and assess the asset value and physical condition of goods.


Therefore, I strongly advocate conducting stocktakes annually, not just for financial reasons but to recognize the significance of stocking. Consider the purpose of stocking as a key pillar for an evolving Inventory Management System aligned with your business growth.


I’m interested to know any additional advantages of stocktaking that haven’t been mentioned here.

Must Read – Stocktaking: The Ultimate Guide to Creating Your Very Own Customised Stocktake Procedure

Frequently Asked Questions (FAQ)

What is the importance of stocktaking beverages?

Stocktaking beverages is crucial for several reasons. It allows businesses to accurately account for their beverage inventory, helping in the prevention of overstocking or stockouts. By tracking beverage quantities, businesses can optimize ordering processes, minimize waste, and enhance cost-efficiency. Ultimately, effective stocktaking in the beverage industry contributes to improved inventory management, reduced financial losses, and enhanced overall operational efficiency.

What is stocking skills?

Stocking skills involve proficiently organizing and replenishing inventory to ensure products are well-arranged on shelves. The goal is to maintain accurate stock levels for efficient meeting of customer demand.

What is the main purpose of a stocktake?

Stocktake reconciles physical and recorded stock for accurate inventory assessment, identifying discrepancies, ensuring an up-to-date and reliable account of goods.

Is inventory good or bad?

Inventory, essential for operational efficiency, poses risks with excess or insufficient levels, causing increased costs, stockouts, and financial risks.


About the Author- Dr Muddassir Ahmed

Dr MuddassirAhmed is the Founder & CEO of SCMDOJO. He is a global speakervlogger and supply chain industry expert with 17 years of experience in the Manufacturing Industry in the UK, Europe, the Middle East and South East Asia in various Supply Chain leadership roles.  Dr. Muddassir has received a PhD in Management Science from Lancaster University Management School. Muddassir is a Six Sigma black belt and founded the leading supply chain platform SCMDOJO to enable supply chain professionals and teams to thrive by providing best-in-class knowledge content, tools and access to experts.

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