Regular stocking is important to inventory management and business success. It is even more crucial if you want to make guided decisions. Yet, many businesses treat their stock-taking activities with levity.
That is a costly mistake – literally because regular stocktaking is a big deal. It offers financial clarity, and strategic planning, prevents stockouts, detects shrinkage, and much more.
Do you take stock only when you like to? Our easy guide on ‘7 compelling reasons why regular stock-taking is important’ will change your mind for good. In return, your business will reap the benefit of data-driven decision-making.
Grab your inventory logs and read on to learn more.
Stock Taking
Picture this: You own a fashion retail outlet. Now, imagine stocking 75 pairs of shoes for resale. You record the sale of 30 shoes for April. Yet, the balance of shoes in the store at month end says 40. What happened to the 5 shoes that are unaccounted for? Could it be theft, an oversight during sales records, or what?
The truth is, many businesses never know there is such a problem in the first place because they don’t take regular stock. Irregular or no-stocking is like playing a dangerous game with business funds.
This example shows one aspect of stock-taking. As a system of checks and balances, it confirms that your inventory at hand is as stated in the books. And if there is any need to raise an eyebrow, regular stock-taking reveals the fact so you can save your business.
So, what exactly is stock-taking?
It is the process of counting and recording the quantity of goods or products a company has available at a specific point in time. This practice is crucial for businesses be it retail stores, warehouses, or manufacturing facilities.
The primary goal of stock-taking is to ensure that the recorded inventory levels match the actual physical inventory. This helps in many ways. A business that prioritizes stocktaking will maintain accurate records, and make informed decisions about re-ordering and production. The information obtained through stocktaking is valuable for financial reporting, tax purposes, and overall operational efficiency.
Manual Stock Taking Step-by-Step
Counting:
At its core, stock-taking involves physically counting the items in a business’s inventory. This can include anything from retail products on store shelves to raw materials in a warehouse.
Recording:
Once the items are counted, the quantities are recorded in a log book. This can be done manually using pen and paper. However, electronic means have long replaced manual methods of stock-taking. Now specialized software or handheld devices do the work with the help of the operator.
Comparing:
The recorded quantities are then compared to the inventory records that the business maintains. These records typically include information such as product descriptions, quantities, and sometimes prices.
If it is a very small business, the stockkeeper can easily take stocks frequently, say, weekly. This way, they can quickly check if the current stock matches with the previous stock after subtracting any sales or adding additional orders made.
Identifying Discrepancies:
Discrepancies may arise when the counted quantities do not match the recorded quantities. These discrepancies could be due to errors in counting, theft, damaged goods, or other factors. One of the importance of stock-taking is making available such details.
Resolving Discrepancies:
Once discrepancies are identified, steps are taken to resolve them. This may involve recounting the items, investigating potential causes of the discrepancies, and updating inventory records.
Analyzing Data:
We dare say stock-taking is incomplete without data analysis. Beyond just counting and recording, stock-taking provides valuable data about the business’s inventory levels. The business can use this data to identify trends, confirm customer buying patterns, improve forecasting, and optimize inventory management practices. For instance, stock taking shows the fastest-selling goods and by how much. Such information is key to the decision-making process.
Taking Action:
Based on the findings of the stock-taking process, the business can take action to address any issues. This might include adjusting ordering practices, implementing tighter security measures, or reorganizing the layout of the inventory storage area.
Reasons Why Regular Stock Taking is Important
Financial Clarity:
Regular stock-taking provides a clear snapshot of your inventory’s current value. This information is indispensable for accurate financial reporting meaning learning how to prepare financial statements is also crucial. The value of your stock represents a portion of your current assets. Simply put, you have a birds-eye view of items you can easily turn into cash. More importantly, this clarity helps you make informed decisions about your business’s financial health.
Preventing Stockouts and Overstock:
Maintaining the right balance of inventory is a delicate skill. Regular stock-taking helps you identify trends, anticipate demand, and prevent both stockouts and overstock situations. This way, you can optimize your stock levels to meet customer demands without tying up excess capital.
Detecting Shrinkage and Theft:
Many small businesses underestimate the importance of stocktaking. They simply run the business as a game of chance while things go missing. Some businesses think their items are too small to be accounted for.
Unfortunately, shrinkage and theft can be real concerns and every cent adds up. Regular stock-taking acts as a deterrent against theft. It helps uncover any discrepancies between recorded and actual inventory. This proactive approach can save you from potential losses and ensure the integrity of your business operations.
Accurate Order Fulfillment:
Customer satisfaction is key in any business, and timely order fulfillment plays a pivotal role. By keeping a close eye on your stock through regular stock-taking, you can ensure that customer orders are met promptly and accurately. You will move from never having enough due to miscalculations to enhancing the customer experience.
Strategic Planning:
Small businesses often operate in a dynamic environment. Regular stock-taking provides essential data for strategic planning. As time goes on, you will observe the rate of your inventory turnover. You will easily know top-selling products and how fast “they move”. This simple fact backed by data can refine your business strategy. Thus, helping you focus on what works best for your bottom line.
Compliance and Accountability:
In the world of business, compliance is crucial. Regular stock-taking ensures that your inventory records align with industry standards and regulations. This not only keeps your business in good standing but also fosters a culture of accountability. For instance, your books will be in order if you need to validate a business proposal.
Ways Technology is Changing Stock Taking and How to Key Into It
Technology has revolutionized traditional stock-taking methods. It has reduced the inefficiencies of manual counting thereby bringing efficiency, accuracy, and speed to inventory management. Here are some ways in which technology is changing stock-taking and your business can embrace these advancements:
Barcode and RFID Technology:
How it works: Each product is assigned a unique barcode or RFID tag. Scanners are used to read these codes, and then, quickly update your inventory levels in real-time.
Benefits: Reduces manual errors, speeds up the counting process, and provides accurate data instantly.
Business Integration: Invest in barcode or RFID systems and integrate them with your inventory management software for seamless tracking.
Automated Inventory Management Software:
How it works: Software platforms help track and manage inventory electronically, providing real-time insights into stock levels, order history, and trends.
Benefits: Enhances accuracy, streamlines workflows, and allows for data-driven decision-making.
Business Integration: Implement cloud-based inventory management systems and integrate them with other business software for a unified approach to operations.
Mobile Devices and Apps:
How it works: Utilizes smartphones and tablets with dedicated apps for stock-taking and inventory management.
Benefits: Increases flexibility, and accessibility, and allows for on-the-go stock taking.
Business Integration: Choose mobile-friendly inventory apps that sync with your centralized inventory management system.
To key into these technological advancements, assess the specific needs of your business, budget, and the scale of operations. Investing in user-friendly and scalable technology solutions can help streamline your stock-taking processes, and reduce errors.
In addition to that, you will need to employ trained staff or organize regular training for staff on how to use these technologies for successful implementation.
Also Read: Different Types of Budgeting Methods Suitable for a Small Business
Conclusion
As we’ve explored in this blog post, regular stock-taking offers many benefits. Chief among these is ensuring financial clarity. Others include preventing stockouts, detecting shrinkage, and enabling strategic planning. The practice serves as the cornerstone of effective inventory management. As budgeting is crucial to planning, the insight from regular stock taking helps businesses navigate supply and demand dynamics.
So, make it a priority. Learn how to manage your inventory. Make stock-taking a routine, and watch as your inventory management practices go from reactive to proactive and from chaotic to control. You bet your business will accomplish much more with such inventory management transformation.