Stocktaking typically applies to businesses that manufacture, buy, sell or exchange physical goods. Whether perpetual or periodic, a physical verification of stocks available in the shelves or in the warehouse is an indication of efficient supply chain management. Stocktaking is a fundamental aspect of inventory control regardless of the technique executed to perform it.
Primary Benefits of Physical Stock Counting
A physical audit of inventories is a way to confirm the quantities and conditions of the stock on hand. Although stock taking may require a considerable amount of time and effort to plan and execute, during a manual count is when you can discover issues such as damage, theft, lost and misplaced stock which a host system cannot detect. A comparison of system records to numbers derived from a physical count will help detect variances if there should be any. Detection and control over inventory variance is important as it has a direct impact on revenue.
Techniques Surrounding Stocktaking
The technique and frequency of stocktaking varies according to nature of business, legal requirements, nature of products/raw material, demand and market share, consistency of receiving and dispatching stock, consumer trends and so on. For example businesses manufacturing or selling food items or products that perish fast such as milk products require frequent stocktaking in comparison to the number of manual counts required for a business manufacturing or selling products with a longer shelf life.
Stocktaking can be annual, periodic or perpetual. Periodic counting which can be annual, semi annual, quarterly, monthly, weekly or even daily depends on the nature of the business. Regular stock takes are typically required for business dealing with food products, milk products, meat products and other fast perishing items such as natural flowers and agricultural products while periodic counting for regular and inexpensive items can be decided by the management based on the company financial year and business requirements.
Shorter intervals for stocktaking is recommended for businesses dealing with expensive items such as automobiles, electronic appliances, jewelry, machinery and also pharmaceutical products. An advantage of perpetual stock counting is real time results although the setup cost is relatively higher in comparison to periodic stocktaking cost. On the other hand, a disadvantage of periodic stocktaking is delayed results.
Manual Stock Count
Techniques employed for physical stock take can be either the traditional pen and paper method or by using tools such as barcode scanners, PDA scanners, counting scales or machines such as calculators and computers. Benefits of incorporating technology in the process helps maximize time and minimizes human errors in comparison to traditional methods which are more complex and time consuming. However, there is no right or wrong method for counting stock on hand and the benefits regardless of the method employed remain the same
Preparing for a Stock Take.
Stocktaking is not fun or easy. Typically requires suspension of operations or can be carried out during night time or on holidays when business transactions are still. It requires a solid plan that includes an estimated duration, methodology, appropriate tools for stock take and a well trained and informed workforce. It is crucial that you also include inventory held for you by a third party in order to know exactly what you have on the shelves and the value and condition of the stock you hold. Those involved in the process should be well informed in advance regarding the methodology that would be executed. Suspending operations during the stocktaking process is highly recommended to ensure accuracy of count.
All finished goods or inbound shipments should be recorded in the host system and everything that is sold or outbound shipments should be either dispatched or separated from the stocktaking area before the commencement of the stock counting process. However, the still stock approach may not be applicable for cycle counting
Cycle counting is often preferred over annual stocktaking by large and complex businesses as the process does not interfere with operations. The physical count of inventories under this method is done by section and in intervals. Cycle counting appears to be a cost-effective method as it does not require extra hours of labor or pause operations. This method also minimizes interruptions, problems and complexity that could occur during an annual stocktake and provides opportunity to rectify errors as and when identified. For example defaults, damages, theft or other issues pertaining to products such as overstock, dead stock, or an understock when detected at an early stage provides adequate time for replacement or to avoid possible loss.
During a Stock Take.
An orderly workspace and careful planning makes the process easier. Dividing the stock/warehouse into sections can help minimize complexity during the count. Tagging, labelling, barcode scanning and maintaining progress records or what we call checkpoints can fast track the process.
Distractions should be eliminated as it causes errors. This includes phones, radio, loud conversations, customers, visitors or anything that can cause distraction including environmental conditions such as inappropriate lighting and room temperature. Those involved in the process should be quick and accurate. A stock sheet should be used to record the items, quantity, cost/price and total value of each item etc. The use of tools such as calculators, counting scales, scanners can be helpful and will minimize errors. Take note that what you count is what should be recorded on paper and not the other way around. This method will help detect unrecorded or undiscovered stock if there should be any.
Recording the Stock on Hand.
The stock on hand should be recorded under current assets either as inventory or stock. The results of a physical audit should reflect in the company’s financial statement. Recording inventory on hand could be somewhat different from stocktaking in a manufacturing setting in comparison to a store or warehouse. Inventory in a manufacturing setting can be divided into categories such as raw material, finished goods. machinery etc. while stock in a store or warehouse mostly contains finished goods or ready to dispatch items. The ultimate purpose of a stocktake is to update the host system of the inventory you possess on hand.
Importance of Stocktaking.
Whether be traditional stocktaking, periodical, perpetual or cycle counting employed according to the choice of the management, stocktaking streamlines inventory control as it helps identify risks, errors, theft and opportunities related to supply, production, distribution and storage. Stocktaking reports are useful to determine inventory turnover and sheds light to refine business plans to increase profit margins. For example, a stocktake result reporting an overstock of a product which could trigger a loss can be prevented by accelerating promotions and advertising that would increase sales. by doing this a possible loss can be turned into a gain, while on the other hand a result of an understock will cause operations to fast track production or purchases in order to cater for the demand.
Overall, stocktaking is considered an essential element of operations and inventory management as it influences production and purchasing decisions, and helps discover and arrest stock issues in advance that could affect profitability.
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