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 or What is 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!
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.
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.
In terms of stock damage, the stocktake will highlight where and why stock damage is taking place.
For example, if there is a leak in the storage facility/warehouse, you will be able to have this found and fixed at its earliest opportunity so as to prevent further items from 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.
If you are a specialist business, you may retain your customer and they will wait and return at a later date. However, this is a rare occurrence, chances are you will lose that custom as the customer will most likely go elsewhere.
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, you must monitor this type of stock and ensure as much of it is sold before you are forced to sell it at a reduced price.
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
You can monitor through carrying out a stocktake your purchase prices at the time of stocking against the latest purchase prices as you will be able to monitor and track changes in the market and how it will impact your 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. Therefore, as one of the preparatory actio,ns I used to direct troops to spend some extra hours and get factory and warehouse 5s scores high!
For me this was one of the key purpose of stocking and substantiate the importance of stocktaking, is to get organised from asset value and physical outlook of goods.
So, there you go, I truly believe that you are doing stocktake at least every year, but now you have more thaa n just financial reason to emphasis the importance of stocking. You should think the purpose of stocking as one of the key pillars for Inventory Management System that will hopefully grow as your business grows.
I would love to hear what else you may feel are advantages of carrying out a stocktake that have not been covered here.
Must Read – Stocktaking: The Ultimate Guide to Creating Your Very Own Customised Stocktake Procedure