What is stocktaking?
Stocktaking (or stock counting) is when you manually check and record all the inventory that your business currently has on hand. It’s a vital part of your inventory control, but will also affect your purchasing, production and sales. Much like any aspect of inventory, the process of stocktaking will vary hugely from company to company.
Despite the name, a stocktake is about more than just stock management. Any inventory that your business needs should be included.
If you’re a manufacturer, for example, then you’ll want to record products that you use to create your finished goods — because running out of these would be just as disastrous as running out of stock.
Watch Unleashed’s Founder Greg Murphy discuss his essential stocktaking steps.
What is cycle counting?
Cycle counting is a stocktaking method which involves checking a set portion of your inventory regularly on set days. Essentially, instead of conducting a single annual count of the entire warehouse, you break it down into several smaller mini stocktakes.
This brings several benefits over 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 larger gap between takes.
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 — at least until they can be 100% sure that moving away from traditional methods entirely won’t bring problems down the line.
- Find out more about stocktaking vs cycle counting.
What’s the difference between stock and inventory?
While they are often used interchangeably, stock and inventory are two different things. Stock is just the products you sell as part of your daily business operations. Inventory, meanwhile, includes any other items you need to make, store or sell your stock.
Why are stocktakes important?
Any product-based business will need to ensure that their levels are 100% accurate from time to time as a part of their inventory control. In some countries, it’s even a legal requirement.
But even if you aren’t required to do so by law, here are three key reasons why you should regularly check your goods.
1. See how well you’re tracking inventory
Relying entirely on your system for accurate stock levels is usually 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.
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)
2. Discover stock issues
Cloud software enables you to easily track your product levels and location, but it can’t do everything. Your system might not highlight a transit problem, for example, whereas a manual check will.
Use a stocktake to identify problems that your inventory management system might have missed: such as damaged products, missing orders, poor control or theft. Sometimes these are one-offs that don’t cause too much trouble, but they can also be symptomatic of a deeper flaw.
3. 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 100% accurate figures.
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, you might:
- Reduce the amount of safety stock you keep on hand in case of an emergency or surge in demand
- Change up your pricing to ensure all your products are selling quickly
Stocktaking and your inventory system
The importance of (and disruption from) stocktakes to your business will vary depending on your 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 come in after hours.
A perpetual inventory system such as Unleashed, meanwhile, should take some of the onus off stocktaking: making the process a little less disruptive.
How to stocktake
There are a few steps that every business should follow when recording stock. Generally, these can be broken down into three stages: before, during and after the count.
Before the count
First of all, decide on a date and time for your count.
You don’t want any unnecessary distractions that could lead to miscalculated figures, so consider either closing operations down for the day or conducting the take after hours. You’ll also need to set aside time afterwards to resolve discrepancies and fix issues.
Next, it’s time to assign everyone a role and confirm your process. All staff should be aware of how the day will progress and have clear steps to follow.
Just before the count takes place, there are two tasks to complete:
- Cut off all your purchases and sales. Otherwise, the incoming and outgoing stock will play havoc with your figures
- Organise the area where the count will take place. Having a clean space helps ensure that there are no unnecessary disruptions
During the count
What happens on the day will depend on your chosen process. However, there are a few guidelines that every business should follow in order for their take to progress smoothly:
Individually recording every item might seem like a tiresome task, but cutting corners can have dire consequences. So take the time to check everything properly, including all your safety stock, cycle stock, and unfinished goods. Don’t just rely on what the labels say.
Count warehouse to sheet
Make sure your staff are following this process in this order, not the other way round:
- Recording the stock that is actually on the shelf
- Noting that figure next to what your system says should be there
Looking at the system and then checking the shelf might seem easier, but it’s far more likely to lead to mistakes.
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, though, so ensuring that you’ve got regular breaks planned will really help keep things running smoothly.
After the count
Just because you have your figures ready, doesn’t mean that your stocktake is over. There are still a few more steps remaining: and failing to follow them will mean that you don’t get the full benefit from all the work you’ve just done.
First of all, value everything correctly. Now you know exactly what you have, you can assess how much it is all worth. Then, check your figures. The more times you check, the surer you can be that everything is present and correct. Once you’re 100% confident, it’s time to upload everything into your inventory system.
Now, it’s time to reorder items that are near to running out and analyse the results of your take. Pay particular attention to discrepancies — major or minor — between the figures from your count and your system.
Dealing with stock discrepancies
Any stock discrepancy is bad news for your business — even if you discover that you actually had more stock on hand than you thought. They’re 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, the first thing to do is to 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 that it doesn’t happen again. This may require changes to your processes, new software or extra security. Then, simply upload the new correct figure into your system to resolve the problem.
Find out more about resolving stock discrepancies.
Now, it’s time to make sure that you get maximum benefit from your count, by analysing its results and how it went. There are two areas to pay particular attention to:
- How you can improve your inventory management. It isn’t just discrepancies that need addressing from your take. It’s also an excellent time to take a look at how you can manage your inventory better. So set aside time to brainstorm how you can improve your work area, procedures and systems
- How you can make the next stocktake run better. The next take is probably the last thing you’ll want to think about. But while the last one is still fresh in mind, make sure to write down any issues, improvements or sticking points so that every future count runs that little bit smoother
How to cycle count
Cycle counting involves a different process to traditional stocktaking:
- Set up your stock for cycle counting
- Conduct each take on its allocated day
- Start the process again
To set up your stock for cycle counting, first of all you split your inventory into several sections. You’ll use each one as an indicator of your total inventory health, so it’s a good idea to carefully consider how your inventory is allocated across each section.
Once this process is complete, you’ll want to ensure that each section is kept in a specific area, and designate the day on which it is checked.
Next, you cycle through each count. Because you’re only including a small part of your inventory, there shouldn’t be any need to close down your operation. However, getting an accurate final figure is still hugely important. So ensure that everyone involved has a set process to follow, and discrepancies are dealt with properly.
After you have conducted all of your mini stocktakes, you start the process again to ensure your inventory is kept 100% accurate.
How often should you count stock?
The frequency of your stocktakes should be a key consideration when choosing an inventory management system — but how do you decide how regular your counts should be?
The exact answer will vary widely from business to business, depending on the complexity of your inventory, whether you’re utilising cycle counting and a host of other external factors. However, there are a few things you should bear in mind when deciding how long you can leave until your next tally.
- Your product-tracking accuracy. The more confidence you have in your inventory tracking, the fewer counts you’ll need.
- Your reliance on accurate figures. If you’re a food manufacturer who needs to deal with expiry dates, for example, you might want to stocktake more often.
- How much disruption you can handle. Bear in mind that a business that rarely takes stock will find it far more disruptive than one that does it regularly.
Improving your stocktaking
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.
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.
Distractions such as smartphones and background noise can mean that you miss important details. Cutting them out might seem cruel, but concentrating on the task at hand will help you finish the job quickly and efficiently.
Keep the warehouse tidy
A messy, disorganised stockroom slows things down and can lead to increased mistakes. The more organised your warehouse is — preferably with labels to differentiate between items — the easier everything will be.
Get everyone’s input
Ask staff who were involved in each stocktake for their opinion on how the next one could go better. Plus, ask them to suggest any general improvements based on the results of the count.
Consider dedicated software
Stock taking software enables you to see stock levels updated in real-time, reducing your reliance on stocktakes for accurate information. When combined with other tools such as barcode scanners, you can begin to automate the entire process.
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