Stock Take: How To Do Them Accurately

In a research study carried out by the Efficient Consumer Response (ECR) on inaccuracy in retailing, 60% of SKU records are likely to be wrong at any point in time, and when corrected, sales are uplifted by 6-8%.

Stock counts are clearly much more than a cost-intensive headache exercise. So, what can we learn about stock taking processes? What methods are there, how often should you ‘take stock’, and what on earth does all the jargon mean?

We see this subject matter disguised under several names. Inventory checking, wall-to-wall, stock-taking, stock counting. Whatever you want to call it, these are the three things the James and James team tell us they hang their hat on when it comes to [insert your preferred descriptor]:

Business Improvement Manager Tomas Aukstikalis says:

Always having your eye on the stock movements is super-important to making appropriate purchasing and marketing decisions.

He continues:

“Sometimes, when demand forecasting didn’t pan out the way brands expected, they end up with too much – or too little – stock on hand.

“In ControlPort, you’ve got a complete snapshot of your inventory in real-time with a suite of reports that go into more detail. Via the cloud software you’ll see stats on the total stock you have, the value and volume of said stock, number of unique product lines, and the cost of storing that stock in our fulfilment centre. Stock figures in your month-end report are continually refreshed and you can take a look at historical stock take reports on specific dates too.

“At a more granular level, you’ll see which products are stocked well, overstocked and low stocked, Best Before End (BBE) status where applicable, dormant lines (products that have been out of stock for over 30 days), and retired products. These are all valuable insights eCommerce brands rely on, on a daily basis.”

Getting down to the nitty-gritty of physical stock-taking

Tomas goes on to tell us that different fulfilment companies use different stock-taking methods. James and James follows best practice with continuous stock taking (aka. rolling stock takes).

This counting process is carried out by the operational teams on a weekly basis. It’s a random sample counting methodology that allows team members to cover a sizable number of items in the fulfilment centre in a short period of time, without disrupting day-to-day operations (hence ‘continuous’).

• Increases accuracy and efficiency in the fulfilment centre
• Meets compliance requirements for auditing
• Offers real-time inventory info for the client
• Reduces errors and keeps stock levels balanced
• Decreases the amount of ‘dead stock’ on shelves
• Ideal for larger eComm businesses managing 1000s of orders and shipments
• Makes finance teams happy!

At the end of each week, the ops team will have a Defects Per Million Opportunities (DPMO) number to measure their weekly operational performance targets and point out any anomalies which need rectifying.

Buzzword checkpoint

Defect: any error in the stock take.

Opportunity: an opportunity for an error to arise – and there’s more than one type of error, for example; an item too many, an item too few, the wrong item in location, or the right item in the wrong location.

Inventory Management System: An Inventory Management System (IMS) is a computerized system that track and manage the inventory of a company. An IMS allows business to keep track of what they have in stock, how much it cost, and when it needs to be replaced. These typically fall into four categories – Manual Systems, POS Systems, ERP Systems and WMS Systems.

DPMO: the number of defects found when checking a million items (each representing an opportunity for an error). In practice, this is a ratio as there are often less than a million items in the check.

DPMO is a process-based measure of how good a stock take is in avoiding errors, and monitored regularly, drives continuous improvement.

There’s also a counting method which sometimes goes by the name of ‘on-request stock checking’ – or ‘blind counting’. This method can either be a ‘soft check’ on quantities or more detailed ‘double count’ verifications.

One (of many) downsides to this option is that it’s a labour-intensive process and one many eCommerce brands say they just don’t have the time to do in-house. Why? Because essentially you’re accounting for every single item, pallet, and case from a blank page. It’s painful, repetitive, and open to error.

The ‘little and often’ approach of rolling stock control certainly sounds more appealing and has little or no impact on the overall performance of the business. Plus, who wouldn’t want to follow the best way?

So, how often should you count stock?

When done in-house, many businesses count once a month, while others prefer quarterly or annual counts. As James Hyde, founder of James and James tells us, annual counting is ‘old fashioned’, but it still happens.

Annual stock counts mean the rest of the year is likely to be inaccurate – a lot can happen in a year – and in high selling seasons.

“Some businesses will also take shortcuts just to make sure the number is close enough to the real thing for audit purposes. Pre-James and James, I recall the story of one company that needed a stock take doing for their ladders. That stock take was to be done outside, with all ladders lined up, in the [expletive] rain – and the rungs needed to be counted too (they came in different sizes). It’s monotonous, it’s raining, you can’t be bothered – you’re going to take shortcuts. But stock-taking shouldn’t be a tick box exercise.”

In a nutshell, taking regular stock takes is a time-consuming, yet necessary exercise. Even then, a stock take’s value goes way beyond a necessity or as James says, ‘a tick box exercise’. The Stock take should be perceived as a sales increasing strategy to resolve discrepancies.

Industry best practice is that counts should be carried out more frequently, but tailored to products with a higher impact on sales (like the James and James way). That’s so you can spend time more wisely.

If you’re doing counts in-house, you’ll likely need to call on extra resources and people, or even shut up shop temporarily, to get everything in order. But – can you afford to grind your warehouse operations to a halt when you’ve got so many customers waiting for their anticipated products?

It’s no surprise that etailers consider outsourcing their fulfilment when stock-taking quite simply needs to be done right.

Key takeaways – Why stock management is important

• You can see how well you’re tracking inventory – having a good picture of your inventory helps avoid stockouts and overstocking
• You can identify any discrepancies, damaged products, or missing orders (stock discrepancy information)
• You can monitor business performance and subsequently, make sound stock-based decisions such as adjusting your pricing strategy or reducing the amount of safety stock on hand
• Inventory accuracy can deteriorate over time following a stock count, so should be done frequently (rolling, regular stock control)
• You can improve your cash flow (by up to 8% if inaccuracies are corrected) and monitor profit margins across your product range.