Managing Stock Part 1.
How often do you have errors in your stock-takes? Do you often find that counting stock seems a little bit pointless or more importantly, doesn’t seem to get the results you desire? You put all this effort into getting your stock-take right only to find a few months later that it’s all wrong. You’re not alone. Many businesses suffer this because the approach to managing stock taking is not holistic. What I mean by that is consider that your stock on hand changes by three key influences.
- Sales at your till.
- Incoming orders.
- Stock-take adjustments.
Getting these managing stock processes right before you start counting stock lays the foundation for reducing the stock on hand errors. Granted theft is a factor, however let’s focus on these three key influences first. Theft is a separate set of controls and we’ll discuss that in a future blog.
Let’s start with the assumption that your process at the cash register or POS till is accurate. If it isn’t, then there’s some basic controls and procedures you can follow, but ultimately the beginning of the chain starts with ordering stock.
For example, do you process your orders through as they arrive? Many businesses find that they’re in a hurry to put products out on shelves and they tend to do this step later or when they’re not so busy, unfortunately, that’s the first mistake. You need to make sure you have strict order processing controls. Not saying you can’t put stock out on the floor, but the point is you must receive the stock into your point of sale system in the same way and manner every time.
You must deal with issues like carton quantities consistently. What I mean by that is if you order in one from the wholesaler, but you break it into 12 separate retail units, you need to have a process to deal with that in your system. This may be consistently putting in one as an order quantity, then adjusting it on arrival of the order or your POS handles this like the Minfos POS. Either way you need to make sure your order processing is not creating future stocktake errors.
A key discipline of the order process is to check what’s received versus what is actually ordered. Effective purchase orders control the flow of incoming stock and get the right stock at the right time and known as Just in Time (JIT) . Your purchase order process should create an order ahead of time based on the rate of sale and supplier delivery lead times. The outcome being that the order arrives just before stock levels reach zero or a minimum holding level.
An example of over-stocked (first 14 days) and the impact of effective ordering towards the end of the month where orders arrive just in time to meet demand. As you can see from the graph this particular product line was over stocked by nearly double the demand.
Effective order processing means that automated ordering will reduce stock holding, free up cash flow for other lines and reduce the stock count. While a flawed ordering process leads to inaccurate stock on hand and being overstocked or worse unwanted stock outs.
If you can’t process orders within the day, the costs of not doing so may be higher than you think in cash flow and future staff time. The other key order processing issue is dealing with stock credits. Stock credits occur when you get damaged stock or out of date stock, which we will cover in our next blog.
For further information check out our blog on Management Accounting or contact us directly.