How to improve stock control & stocktaking

Stocktaking is the first step to effective stock control learn how to complement it with automated inventory processes that will boost your profits.
June 21, 2022
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5-min read

Whether you own a wholesaler, distributor or merchant business, chances are that stock issues have given you your fair share of headaches. The truth is that keeping on top of your inventory isn't easy. The best way of doing it? In our opinion, it's all about implementing effective stock control measures.

In this article, we'll explore what stock control really means, how to master stocktaking, and how perpetual inventory systems can make it even easier.

Defining stock control

In short, stock control is the process of maintaining the right quantity of items in an inventory. This allows businesses to meet customer demand while keeping stock-holding costs to a minimum. Managing stock levels is all about striking the right balance. If you have too much stock of a product that's not selling well, you're wasting resources, inventory space and - most importantly - money.

In business jargon, there's a name given to the total of all expenses related to stocking unsold products - inventory carrying costs. These vary by industry and business size, but they often comprise roughly 20% to 30% of total inventory value. Of course, these numbers increase the longer a certain unsold product is stored. This is a significant percentage that needs to be accounted for when making budgeting decisions.

Apart from leading to additional logistics costs, overstocking is a cash flow killer. However, being understocked can be even worse, as you're missing out on making a profit. Failing to meet consumer demand can be extremely costly. This is particularly true of industries where consumer demand ebbs and flows unpredictably - such as fashion or technology.

Missing out on sudden trends can lead to unrecoverable losses of revenue. On top of that, not being able to fulfil orders on time will inevitably lead to customer dissatisfaction and mistrust. In our current sales environment where potential customers are just one click away from reading reviews of your business, this could be fatal.

Fortunately, maintaining a good business reputation isn't impossible. And neither is avoiding being overstocked:

Stocktaking - the first step to effective stock control

As its name suggests, stocktaking is the process of checking the quantity and quality of your stock in your warehouse or stockroom. It is also known as wall-to-wall checking or inventory checking.

The gist of it is very simple. Stocktaking involves counting every piece of stock you have and then writing down the number of items. In the pre-computer days, this was often done with an inventory notebook - effectively an unsophisticated predecessor to the Excel spreadsheet. Nowadays, stocktaking can be performed with the help of inventory-specific software. This reduces the chance of human error to the bare minimum - not to mention that it also makes the whole process a lot simpler.

Here's a breakdown of the stocktaking process into four different stages.

1. Choose how often you're doing stocktaking

Let's get this out of the way first - stocktaking is not fun. It's a menial and laborious task that can wear out the most patient mind. To make things worse, it also requires a high degree of concentration, and is extremely time-consuming. Performing stocktaking effectively requires excellent organisation and an airtight system. And that's why the first step is to figure out how regularly you're going to take stock.

Here are three different options based on how often stocktaking is performed:

Annual stocktaking: Performing an annual stocktake is the bare minimum for most organisations. However, it makes sense for businesses that trade in non-perishable goods or companies where the selling of products isn't the main focus. Companies that perform annual stocktaking usually do it at the end of a business year. There are two main drawbacks to this. The first is that it increases the possibility of a human error taking place, as the results won't be double-checked until the following year. The second one is that it doesn't allow companies to tweak their business plan as the markets fluctuate. As a result, annual stocktaking should only be performed in very specific scenarios.

Periodical stocktaking: This is the most popular form of stocktaking for hospitality businesses and physical shops. As with annual stocktaking, all the stock is counted in one sitting. What changes here is the frequency with which the stocktaking takes place. Depending on the business, stocktaking might be performed quarterly, monthly or fortnightly. Although this approach ensures accurate results, there is a clear drawback to it - it takes too much time. Most small and medium businesses simply don't have the manpower to perform regular stocktaking. This can lead employees to just rush through stocktaking - which in turn can have fatal consequences for a business.

Continuous stocktaking: This method involves taking stock on a regular basis. Continuous stocktaking is performed over periodic stock counts to increase accuracy, making it particularly helpful for high-turnover and high-value goods. It increases accounting accuracy and improved stock management, leading to better financial results and eliminating the possibility of stock-outs. For companies that hold a large amount of stock, continuous stocktaking is simply too time-consuming and costly to be effective. So what are the alternatives then? Without a doubt, the best one is to complement physical stocktaking with a perpetual inventory system - more on this later

2. Have your stock sheets at hand

Stock sheets or inventory sheets are checklists that allow you to keep up-to-date records of your inventory levels. You can create your own stock sheets on spreadsheet software such as Google Sheets or Microsoft Excel. DIYing your stock sheets is a cheap and simple approach, but it leaves too much room for error.

If you want to perform stocktaking accurately, investing in inventory software is the way to go. Most inventory software allows you to print updated stock sheets with just a couple of clicks, making stocktaking a lot more effective than with the spreadsheet approach.

Once you have printed your sheets out, check your inventory levels against what your system says should be there. This allows you to mark discrepancies, which is particularly useful when it comes to counting returned stock.

3. Plan ahead

To do a good stocktaking job, painstaking attention to detail is of paramount importance. That's why taking regular breaks should be mandatory. Fatigue can easily lead to loss of focus, making counting mistakes a lot more likely than if you were stocktaking with a fresh mind. Use an alarm clock to time the minutes you've spent counting stock in order to avoid exhaustion. Just remember to clearly mark the point where you're at so you can continue after your break.

Another way of avoiding fatigue is to split the stocktaking task into several portions. This also allows you to assign portions to more than one person. In doing so, you will reduce burnout and increase the accuracy of your stock count. It also ensures the same portion is not counted twice by the same person.

4. It's counting time!

First of all, try to keep operations in the area where you're stocktaking to the bare minimum. The last thing you want is someone messing with your stock while you count it. It can be useful to perform stocktaking outside business hours to ensure that no stock is going out or coming in. Some businesses even put their sales and purchases on hold for the duration of the stocktake.

During the stocktaking itself, remember to count every single item on your shelves. That includes safety stock, cycle stock and unfinished or damaged goods. Once you have finished counting your shelf stock, compare it to the latest number in your system. When you have done this, double-check your figures and make sure that everything looks ok. Then, you can finally update your inventory system and take action when appropriate. For instance, if you notice that you're running low on a certain popular item, you'll want to re-order it as soon as possible.

Perpetual inventory system - the stocktaking method of the future

When you're doing stock control, the one thing that you really have to watch out for is human error. Due to the repetitive nature of the task, it's very easy to count the same item twice - or to miss an item altogether. Above, we have shown you a couple of strategies that you can adopt to reduce the chances of human error. However, none of these are as effective as implementing a perpetual inventory system.

Also known as perpetual stocktaking, perpetual inventory systems are a kind of inventory valuation that gives you a real-time view of your stock availability. They automatically record the sale and purchase of stock through the use of a computer program. Even better, perpetual inventory solutions can also track and manage order returns. This is particularly important for online retail businesses that receive a large number of returns on a daily basis - such as clothing or jewellery.

The benefits of perpetual inventory systems can be counted by the dozen - but here are our three favourites:

1. Updated stock counts 24/7

Thanks to perpetual inventory systems, businesses have access to updated overviews of their current stock at all times. That means that the need for undertaking regular physical stocktakes is all but eliminated. There are many different ways that this can boost a company's productivity. For example, having access to real-time stock counts means that every single decision you make about your inventory will be backed up by data. That means smarter decisions will be made - avoiding stock shortages and reducing holding costs. In turn, this will lead to bigger profits.

2. Stock control for all kinds of businesses

Any online retail giant will have a strong stock control system in place. Perpetual inventory systems have become a must for large businesses with extensive inventories that are usually spread across several warehouses. However, they are also an indispensable tool for small and medium businesses that can't afford to waste resources. By providing you with efficient and accurate information, perpetual inventory systems will give you a competitive advantage over rival businesses that still rely on dusty Excel spreadsheets for stock control.

Even better, a perpetual inventory system will save you loads of time. How? It's simple - by reducing the need for physical stocktaking to the bare minimum. That way, your staff can focus on areas where you really need their help. Computers might be great at stock control, but their customer service and marketing skills aren't quite there yet. Implement smart ways of working and use your staff in areas where you really need them.

3. Remove the risk of human error

If you ask us, the best thing about automated processes is that they minimise the chances of human error. This is also the case with perpetual inventory systems. With a perpetual inventory system in place, your stock counts will have a baseline that is automatically updated as you sell or receive stock. This means that your inventory overviews will always be accurate - which in turn will reduce the chances of being under or overstocked.

Mistakes can still be made with perpetual inventory systems - they are just less likely to happen. For best results, we recommend complementing them with periodical stock counts. This will ensure that the baseline in your system is correct and that there haven't been any scanning errors or untracked inventory movements. If you find any discrepancies between what's in your warehouse and what's in your systems, you can simply adjust your baseline to the correct data.

Work smarter, not harder

Making a business successful is not just about having an impeccable work ethic. It also requires smart processes that save your precious time and energy for the tasks that matter the most. And that is where we come in. At OGL Software, we have crafted a stock control system that includes plenty of automated processes to make your life easier. From perpetual inventory systems to multi-channel stock management tools, our ERP system will equip you with everything you need to work smarter.

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