Stocktaking & Inventory Measures

What is stocktaking?

Stocktaking or inventory checking is the physical verification of the quantities and condition of items held in a store or warehouse. It is a critical part of your inventory control and affects purchasing, production and sales.

  • Stock or inventory can include anything from raw materials such as concrete or chemicals, components and sub-assemblies for example car or aerospace production, clothing, household items and consumables, through to finished products that are available for sale to consumers.
  • A stock-keeping unit (SKU) is a uniquely identifiable piece of inventory. It is the basic unit of measurement within the inventory. The unit can be raw materials, fluids, parts, sub-assemblies, clothing, packaging etc. It may be identified with a unique item number, but it must have a unique combination of form, fit or function.

Why is stocktaking important

Stocktaking is a fundamental means of assessing performance and profitability while ensuring efficiencies within the business. The following are good reasons to regularly undertake a stocktake.

  • It increases profit while reducing loss and waste
  • It provides accurate records of which products are performing well and which are not
  • It ensures the assets are right on the company balance sheet
  • It monitors real-time stock levels and so can identify shrinkage, damage and theft
  • It monitors seasonal stock and stock with expiry dates promptly
  • It helps to keep pricing and pricing strategies up to date with the current purchase price
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Six benefits of ABC Analysis by Dr Muddassir Amed

Not all items in an inventory are of the same value, therefore these items are broken down into three categories A, B and C. Class A consists of most valuable items, although these items constitute only 10% of the quantity they account for 70% – 80% of consumption value.

 

 

Different Approaches to Managing Stock

There are several methods of stocking used to reduce the cost impact of holding excessive stock:

  • A minimum/maximum stock approach is a traditional inventory management and replenishment system. The system sets a minimum inventory level which is used to trigger a re-order when the stock on hand plus what is on order is less than the minimum level set in the system. Stock is then ordered up to the maximum level.
  • Just in Time (JIT) is an inventory control system that controls material flow into ‘production’ by coordinating demand and supply so tightly that materials arrive just in time for use, rather than sitting in stock awaiting use for days. It is an inventory reduction strategy that relies on organisational Stocktaking and inventory measurement as a means to improve profitability effectiveness and predictability of supply chains to ensure that ‘production’ runs smoothly without costly stock-outs. Deliveries are generally received in smaller more frequent lots. Zero inventory is the goal of this approach.
  • Just in Time II (JIT II) is the next step, where the stock supply and co-ordination take place actually within the ‘production’ facility. This becomes the responsibility of the suppliers and is termed ‘implants’. They ensure that the supply of frequently used parts is not disrupted but becomes integral to the production. This is an example of supply chain cooperation in action.
  • Supplier owned inventory (SOI) covers various ways of using the supplier to manage your stock inventory. Companies may have chosen to outsource the physical management of stock to move inventory assets from their balance sheet.

Define the Process

Management of a company’s assets, whether it be people, plant, stock or buildings can be what sets apart a highly profitable company from a low profitable one, or a low profitable company from a bankrupt one. Good inventory measurement and management are now seen to be integral to profitability, pricing strategies and future investment approaches.

The suppliers may be too few or too many and service level agreements not adhered to, or even non-existent, resulting in inefficiencies and waste. Sometimes overly complex procurement systems and misaligned processes can also negatively impact the stock situation.

To find out more about this subject read the full knowledge paper: Stocktaking and inventory measures

 

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For addition reading on this topic visit Operations Management

 

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