Stocktaking

Stocktaking, also called inventory checking or stock counting, is the process of checking and recording the quantities and condition of physical inventory held by a business. It’s a core aspect of effective stock management that impacts purchasing, production, and sales.

The appropriate stocktaking procedure varies from company to company, and can depend on the resources and time available to you.

If you’re a manufacturer, for example, stocktaking encompasses more than just counting finished goods – it also involves checking stock levels for all your raw materials, components, and work-in-process inventory.

What is a stock take?

A stock take is a physical inspection undertaken to determine the quantities of stock held by a business. It is either performed manually – whereby employees conduct physical counts of each item in an inventory location – or with digital tools, such as barcode scanners and inventory management software.

The purpose of a stock take is to ensure perfect accuracy in a company’s recorded stock levels.

Regular stocktakes are also necessary for identifying and reducing inventory discrepancies caused by inventory shrinkage, dead stock, and expiring perishable goods.

Stocktaking is vital because it’s the most effective way of maintaining accurate, up-to-date stock records for each of your inventory items. Improved inventory accuracy reduces the risks of overordering and stockouts while helping a company stay lean with its purchasing spend.

A business holding 1,000 stock items with an inventory shrinkage rate of 2.5%, for example, would be losing 25 items per year. If those items are valued at $5,000 per unit, that’s an annual loss of $125,000.

In one year, over 13% of retailers in the United States reported an inventory shrinkage rate of 3% or higher – while over 20% experienced an inventory shrink between 2.0–2.99%.

Regular stocktaking helps you spot discrepancies before it’s too late, so you can determine why items went missing and prevent it from happening again.

In some countries, regular stocktakes are a legal requirement. But even if you aren’t required to perform a stock take by law, there are plenty of benefits to counting stock regularly.

Here are five main advantages of stocktaking:

• Maintain accurate stock levels
• Understand how effectively you’re tracking inventory
• Discover stock discrepancies
• Meet business targets
• Improve inventory management processes

1. Maintain accurate stock levels

Whether you’re operating a retail shop, managing a warehouse, or running a manufacturing business, you need to know what items are available so you can make the right decisions around sales, purchasing, and production.

Imagine you receive an order for 300 units of your most popular product.

To not lose the sale, you must fulfil the customer’s request within 15 days.

You check your stock records: there are 400 units remaining in your warehouse, so you reserve those items and relax because it only takes three days to ship to your customer.

Before you ship the order, 100 units are sold to other customers. You believe that’s fine because there are still 300 units remaining – according to your inventory system.

However, because you haven’t performed a stocktake recently, your records are out of date and there are actually only 280 units remaining. It’s now too late to order more stock in time to meet your customer’s deadline, so you miss out on the sale.

2. Measure inventory tracking effectiveness

Relying entirely on your inventory system for accurate stock levels is a bad idea.

By comparing the figures from a stocktake to what you thought you had on hand, you can identify discrepancies and fix them before they become problematic – like in our example above.

If you aren’t tracking your goods as well as you thought, then it may be a sign that you have poor inventory control.

It’s worth fixing issues sooner rather than later before they lead to bigger problems such as:

• Stockouts (when you run out of products to sell)
• Overstocking (when you have too many products on hand)
• Dead stock (when your products become obsolete before they can be sold)

3. Discover stock discrepancies

Cloud-based inventory software makes it easier to track your stock quantities and locations, but it can’t do everything.

Your system might not highlight a transit problem, for example, whereas a manual check will.

Regular stocktaking helps identify problems that your inventory management system might have missed: such as damaged products, missing orders, theft, or inefficient stock control.

Sometimes these are one-off problems that don’t cause too much trouble, but they can also be symptomatic of a deeper issue that needs resolving.

4. Ensure your business is meeting targets

When it comes to monitoring the performance of your business, you don’t want to leave anything to chance. Calculating key metrics such as inventory turnover, for instance, requires completely accurate stock records.

Once you know exactly how your inventory control is performing, you can start to refine your procedures and plans to increase efficiency and grow margins.

For example, when you know exactly how much stock you have, you can:

• Reduce the amount of safety stock you keep on hand
• Change up your pricing to ensure all your products are selling quickly
• Reorder more inventory ahead of a seasonal surge in demand

5. Optimise inventory management

When your inventory management system is up to date, you can start achieving efficiency gains by using the data it delivers to make decisions around how and where you store your stock – and when to reorder.

The importance of (and disruption from) stocktakes will vary depending on your business’s inventory system. Businesses employing a periodic inventory system, for example, are entirely reliant on stocktakes to get visibility over current levels.

For these companies, recording stock can mean closing for a day or requiring staff to work extra hours.

A perpetual inventory system will take some of the onus off stocktaking, making the process a little less disruptive. But even a perpetual system must be regularly updated based on physical counts to maintain total stock accuracy.

The stocktaking process can be broken down into 7 simple steps:

1. Planning how you’ll perform the stocktake
2. Preparing your location and organising inventory
3. Gathering necessary materials and assigning responsibilities
4. Conducting a pre-count
5. Performing the initial stocktake
6. Recounting discrepancies that do not match your stock records
7. Updating inventory records

Follow these steps to conduct a thorough and efficient stock take:

1. Plan your stock take

It’s important to make a detailed plan before you begin a stocktake.

You must first determine a date and time for conducting the stocktake. Make sure it doesn’t fall on a day when you have other important business matters happening, as stocktaking is often a time-consuming, resource-intensive activity.

2. Prepare the business

Clean and organise your storage facility or shop where you will be performing the stocktake. Ensure that all of your inventory items and locations are clearly labelled, and that all goods are in their correct place.

Check your staff roster to be sure there will be enough stock takers available on the day.

“With stocktakes, you need to prepare. The whole company needs to know what is happening, who is involved, and what they are doing. You’ll also want to ensure that all your latest purchases are receipted and everything that has gone out is sold. Once that’s done, stop. Because you need that stock to be still to get an accurate count.” - Greg Murphy, Founder of Unleashed Software

3. Gather materials and assign roles

Make sure you have all the necessary equipment ahead of your stock take so everything runs smoothly. This might include:

• Pens and markers
• Clipboards
• Inventory lists
• Barcode scanners
• Calculators
• Kneepads

Determine each stock taker’s responsibilities and provide any training if necessary. You may wish to allocate one ‘counter’ and one ‘recorder’ to each inventory location or product type.

4. Perform a pre-count

The pre-count is a stocktaking process that can save you time before you dive into the real thing.

Review your inventory records and look for any obvious discrepancies – for example, you may see that there’s an extra zero on the end of a certain quantity of goods.

Address these issues ahead of time to prevent major confusion or extra work later on.

5. Count your existing stock

Perform manual counts of each inventory item, recording the quantities as you go along. This can be done by filling out a printed spreadsheet or using digital tools such as a barcode inventory system or RFID scanners.

Count the items systematically to avoid making a mistake: from left to right, or bottom to top – whatever makes the most sense for your business.

6. Recount items with discrepancies

Reconcile the results of your stocktake with your inventory records.

Are there any discrepancies?

If so, you’ll need to recount those items that do not match your records.

This is important because there’s a chance that you miscounted during your original assessment, and you’ll need to make sure those discrepancies are a result of inventory shrinkage and not human error.

Dealing with stock discrepancies

Any stock discrepancy is bad news for your business, even if you discover that you had more stock on hand than you thought (see: Why Too Much Inventory is Bad for Business). 

Discrepancies are often symptomatic of a larger problem in your inventory control, which might be catastrophic if left to fester.

Plus, they mean you are running your company on incorrect information.

When you encounter a discrepancy, uncover its cause. It might be a simple human error (putting something in the wrong place or incorrectly entering data into the system). Alternatively, it might be a serious problem such as theft or supplier issues.

Once you know what caused the discrepancy, you can take steps to ensure it doesn’t happen again. This may require changes to your processes, new software, or extra security.

Then, simply upload the new correct figure to your system to resolve the problem.

7. Update your stock records

Now that you’ve got the final results of your stock take, it’s time to update your inventory system.

If you’re using spreadsheets to manage your inventory this may take a while. Double check each figure as you enter the new quantities into your inventory records and then…

Voilà! Your stock records should now be completely up to date and accurate.

After the count

Just because you have your figures ready doesn’t mean your stocktake is over.

Now it’s time to analyse the results of your take and replenish items that are close to running out.

Pay particular attention to discrepancies – major or minor – between the figures from your count and your system. Be sure to follow up on these to determine the root cause.

There are several methods you can use to count stock in your business.

Let’s go over some of the most popular ones.

Wall-to-wall stocktaking

Wall-to-wall stocktaking is a method that involves every single inventory item in your warehouse, shop, or storage facility. These should be performed at least once a year, or whenever you switch or upgrade your inventory system.

This method of stocktaking can be disruptive to business-as-usual, so it’s important you follow all the steps in our stocktaking process above to avoid being unprepared.

Cycle counting

Cycle counting is a stocktaking method which involves regularly checking a set portion of your inventory on set days. Instead of conducting a single annual count of the entire warehouse, you break it down into several smaller stocktakes.

This offers several benefits above traditional stocktaking, the biggest being that you avoid the disruption that comes with a single annual take.

For this reason, cycle counting is particularly popular among large firms that can’t shut their operations down entirely. It can also help avoid the large variation that sometimes arises when there’s a bigger gap between counts.

However, cycle counting is a complex process that relies on high inventory accuracy to work. Some small businesses use a mix of cycle counting and traditional stocktaking.

Spot checking

Spot checks are a method of stocktaking whereby the stock taker randomly investigates specific items, areas, or categories of inventory. These are useful for identifying discrepancies early and can be quick and easy to do.

You may also choose to do spot checking when you think an item may be missing or when you discover a supplier has been flagged as unreliable.

Stock taking looks a little different depending on your industry and the objectives of the count.

Different types of stocktakes include:

• Retail stocktaking: This involves counting inventory that is either on display in a retail shop, or out the back in the retailer’s storage area.
• Warehouse stocktaking: Taking stock in a warehouse involves counting all of the inventory items currently being stored on shelves, in bins, or in other locations such as on the floor or in a cupboard.
• Pharmacy stocktaking: Stocktaking in a pharmaceutical business a critical process, as it involves not only checking inventory quantities but also making sure pharmacy goods have not expired and meet regulatory requirements.
• Asset stocktaking: Also known as asset auditing, asset stocktaking is similar to regular stocktaking but rather than counting your inventory items you verify and record the details of your company’s fixed assets: such as any equipment, vehicles, or machinery owned by the business.

There’s no single method that will work for every company, but there are lots of ways to improve how you record stock. Here are some tips to get started.

1. Use a barcode scanner

Manual counts are prone to error, especially as your company grows.

Barcode scanning technology reduces these risks by allowing you to quickly record stock levels and store the data at the same time. A barcode scanner uses a light source, a lens, and a light sensor to enable you to scan and view large amounts of data in one place.

2. Take breaks

Anyone that’s been through a few stocktakes will say the same thing: they can be draining.

You need everyone involved to be as focused as possible throughout, so regular planned breaks are essential for keeping attention levels high and employees focussed.

3. Dodge distractions

Distractions, such as smartphones and background noise, can mean that you miss important details. Cutting them out might seem strict, but concentrating on the task at hand will help you finish the job quickly and efficiently.

4. Keep the warehouse tidy

A messy, disorganised stockroom slows things down and can lead to increased mistakes.

Good warehouse management is essential for stress-free stocktaking. The more organised your warehouse is – ideally with labels and bins to differentiate between items – the easier everything will be.

5. Involve your whole team

Involvement from the people on the floor will make your stocktaking process go much more smoothly. When planning a stocktake, request guidance from your team – especially those regularly tasked with managing inventory.

After a stocktake, ask staff involved for their opinion on how the next one could go better, and get them to suggest improvements based on the results of the count.

6. Use cloud inventory management software

Cloud inventory management software, also known as stocktaking software, enables you to see stock levels updated in real-time, reducing your reliance on stocktakes for accurate information. It automatically records your stock movements in real time, ensuring levels are perpetually updated.

When combined with other tools, such as barcode scanners, you can automate the majority of the manual labour involved in stock management – saving you time and money while improving staff satisfaction.

If you’re ready to upgrade to an automated inventory system, Unleashed can help you accelerate stocktaking and boost inventory accuracy.

Unleashed also provides powerful features for:

• Inventory optimisation
• Purchase order management
• Multichannel sales enablement
• Bill of materials management
• Batch and serial number tracking

To try these features and more for free, book a call with one of our stocktaking experts or sign up for free today.

Find out if Unleashed is the right solution for you – follow these steps:

1. Watch an inventory software demo. See how cloud-based software helps you increase inventory visibility and speed up stocktakes to save time and reduce errors.

2. Sign up for a free 14-day trial. See first-hand the ways stocktaking software can help you optimise your inventory with a risk-free two-week trial of Unleashed.

3. Chat with an inventory expert. Book a free chat with one of our friendly experts for an honest discussion about your stock management needs.