What is Stocktaking & How to Stocktake Perfectly? 2024 UK Guide

Stocktaking may be one of the less exciting parts of running a business but it’s definitely not one to be ignored. Doing a stocktake is a key process in inventory control and it serves as a basis to inform all your purchasing, sales and production decisions.

To help you understand the basics of stocktaking and to make you feel more confident with the stocktaking procedure, our team of industry experts at ADP Distribution called upon their 50+ years of combined experience to create this handy guide. Below you’ll find useful information about: 

• What is stocktaking? 
• Why is stocktaking important?
• How to stocktake: The Stocktaking procedure 
• Before
• During
• After 
• How to manage stock discrepancies
• Stocktaking and inventory management
• How often should you take stock
• Minimising disruption with cycle counting
• How to stocktake better 

What is stocktaking?

Stocktaking or stock counting is the manual process of physically counting the number of your goods, as well as checking and verifying the condition they are in. Without a stocktake, there is no way of knowing what inventory you have in stock, which is why it’s at the core of successful inventory management. 

Here you might think “Wait a minute! Inventory and stock are two different things” and yes, that is true – your stock comprises your sellable goods while your inventory includes all of the items needed to produce, stock and distribute the goods, as well. 

Yet, your stocktaking practices should include keeping track of both, which is why they affect sales, production and purchasing. 

Why is stocktaking important?

Accurate stocktaking takes the guesswork out of your business planning, so it’s not hard to see why it’s such a crucial part of running a business. It can help you uncover issues with your inventory and fix them, allowing your operation to grow successfully. Here are some of the benefits of implementing a good stocktaking procedure:

Understand where your cash is: Stocktaking is the link between your financial figures and what’s going on behind the scenes. It helps you track your money from how much is tied up in stock to how much is wasted due to poor handling of your goods and how much is lost in potential sales that cannot be delivered upon due to unavailability of the stock 

Pinpoint recurrent issues with stock handling: Missing orders, damaged products and even theft are a normal occurrence for any business dealing with goods if they are limited to one-off incidents. However, doing a stocktake can help you spot a pattern of damaging behaviour, so you can take action towards rectifying it. 

Monitor the performance of your business: Having an accurate idea of your stock quantities and whether they match your plans and predictions shows whether your business is meeting targets or not. If problems are discovered, it could prompt the implementation of various changes to increase the efficiency of your operation. For example, you may want to amend the pricing to ensure that all stock is moved quickly, or you could reduce the amount of safety stock you keep in case of an emergency to improve your cash flow and give yourself the opportunity to invest in your business’ growth. 

Improve your inventory control: If discrepancies are uncovered during a stocktake, addressing those could improve the quality of your inventory control process significantly. As a result, it could help prevent major issues such as, running out of goods to sell (stockout), having cash flow issues due to overstocking and losing money due to dead stock (goods that are unlikely to ever sell). 

Increase staff awareness: When your employees are forced to count every single item sitting on the shelves, it inevitably increases their knowledge about the products and the organisation. Having better awareness makes staff more efficient. 

How to Stocktake: The Stocktaking Procedure

The stocktaking procedure is different from one company to another. However, whether you are a manufacturer or a retailer, the same general, three-stage process applies. Any stocktake requires a set of actions that can be grouped into three categories: before, during and after the stocktake. Here’s what to do at each stage. 

Before the Stocktake

For the stocktaking procedure to go smoothly you have to perform a set of preparational tasks to ensure that both the area where you will be counting the stock and the people involved are ready on the day. 

• Prepare an up-to-date sheet with information on your stock levels; you will need this on the day to compare and find discrepancies 
• Schedule a date and time for the stocktake
• Assign specific tasks to the people responsible for the stocktaking
• Plan and communicate the exact steps to be followed on the day of the stocktake 
• Pencil in time to fix any issues after the stocktake is done
• Put on hold all your sales and purchases for the time of the stocktake  to avoid disruptions to the stock count due to incoming and outgoing stock 
• Keep operations in the area where the stock counting will take place to the bare minimum to limit outside interference 
• Ensure the area of the stocktake is clean, tidy and organised; any mess can slow the process down

During the stocktake

As we mentioned earlier, depending on your chosen method of how to do a stocktake, you will have to follow a different process on the day. The must-dos, however, remain the same:

• Count everything that is on the shelf and record it 
• Safety stock, unfinished goods and cycle stock must also be included in the count  
• Compare your count to the latest number in the system (do that only after the actual stock has been counted, not the other way round)   
• Take regular breaks – fatigue leads to loss of focus and mistakes, affecting the accuracy of the count  
• Continue until all stock has been counted 

 

After the stocktake

Even though the most arduous and time-consuming part of the stocktaking process is done, the steps you take afterwards are equally important. It’s the stage where you make sure everything is correct and that the stocktake has served its purpose. 

• Find out how much your stock is worth
• Double-check your figures to make sure you have valued your inventory correctly
• Once the information has been confirmed, upload it into your inventory management system
• Reorder stock that is running low 
• If discrepancies are found, check which number is correct; Recount if you must
• Look into the possible reasons for the discrepancies
• Analyse the findings of the stocktake and identify areas for improvement

 

How to manage stock discrepancies

Every business owner knows the importance of accurate data. A stock discrepancy means that your entire business strategy is built on incorrect information and that is a scary prospect. If you don’t address the issue on time, it can lead to disastrous consequences for your entire organisation. 

Whether you have more stock than you thought you did or if you find out you are running dangerously low on certain goods, it’s an indication that you might have a serious inventory control problem, problems with your supplier and potentially even theft. 

This is why it’s essential to find the cause of the discrepancy. Your investigation is very likely to show that it was just an isolated incident resulting from human error, such as misplacing an item or typing the wrong number on the keyboard when entering data, and if that’s the case – that’s fine;  you can rest assured that there is no underlying problem threatening your business.  

Either way, once you know the reason for the discrepancy, you can take the appropriate measure to prevent it from happening again and that’s the true value of good stocktaking. 

Stocktaking and inventory management

Addressing stock discrepancies is the most obvious action you need to take after a stocktake has been completed. However, you can extract even more value from the information gained during stocktaking by performing a thorough analysis to identify ways to improve your entire inventory management strategy. So, make sure you always set aside some time after the stocktake to think about how you can make your operation run more smoothly and efficiently. 

Does your work area need to be modernised? Should your warehouse be reorganised to increase productivity? Are there ways to change the current inventory management processes and procedures to achieve better results faster? Is it worth implementing an inventory management system? Those are all questions that you should be asking yourself based on the results of your stocktake.

For more information on the best inventory management practices, check out our Complete Guide to Inventory Management. 

How often should you take stock

There is no one-fits-all answer to this question. How often you should count your stock depends on the size and type of business you run. 

Some businesses prefer to do one, big annual stocktake. It means that you only have to worry about stocktaking once a year but when you do, absolutely everything comes to a halt until that one massive stocktake is complete. 

The more popular (and probably the more efficient) approach is to do smaller, regular stocktakes. If you update your records every month or even every week, you are less likely to spot major discrepancies and if you do, you can pinpoint the issue and subsequently find its cause and eliminate it early on. 

Even though a weekly stocktake sounds ideal, it’s not always a plausible solution and it doesn’t work for every business. Being excessive in your stocktaking frequency can create confusion due to many data updates and too many process interruptions (remember, a stocktake puts everything else on hold). However, not doing stocktakes often enough exposes you to mistakes and subsequent losses. 

So, the general rule is that you should have as many stocktakes as possible without them becoming a distraction that impacts the efficiency of your business operation.  How do you decide that? The pointers below are a good place to start:

• If you have exceptional product-tracking accuracy, then you probably don’t need as many stocktakes and you could consider implementing cycle counting
• If you deal with products that have a short shelf life, you will need to do stocktaking more often due to the impending expiry dates
• You have to find the Golden Mean. Too much disruption can negatively impact the productivity of the business but more frequent stocktakes mean fewer mistakes and better processes, potentially making them less disruptive overall. 

Minimising disruption with cycle counting

Cycle counting is a less disruptive alternative to traditional stocktaking. This method doesn’t shut down your whole warehouse, instead, you check the stock count in various areas at regular intervals. Essentially, you are splitting a full stocktake into multiple mini stocktakes. 

By doing that, you reduce the disruption because most of your business can go on as usual. It’s a perfect solution for bigger companies that simply cannot afford to completely stop working. Plus, cycle counting can be done more often, reducing the probability of serious changes occurring between the separate stocktakes. 

Here you might be wondering if it’s all so perfect, then why isn’t everyone doing cycle counting. The reason is that stocktaking via cycle counting is very different to organise. 

• First, you have to decide which part of your inventory will be checked in each cycle. 
• Second, since you won’t have to close down your whole operation, you have to have very strict processes in place to ensure that the stocktaking is done well and all issues are addressed afterwards. 
• Last but not least, you must be confident that you have top-notch inventory accuracy, otherwise, due to the rotary nature of the process, it may take longer to come across issues

To be on the safe side, it’s probably best to employ a mix of traditional stocktaking and cycle counting for the best results. That way you have multiple failsafe protecting your business. The only hurdle is planning all of these different processes correctly to get the optimal results. The good thing is that after every stocktake you have the time to think about what could have been done better and to come up with suggestions on how to improve the process in the future. 

Shrinkage Prevention

Shrinkage prevention is crucial for safeguarding inventory assets and maintaining profitability. Effective strategies involve a multifaceted approach, starting with robust security measures like surveillance systems and access controls, coupled with comprehensive employee training to promote awareness and deter theft or unauthorised access.

Optimising inventory management processes is another key tactic, including regular stocktaking, implementing inventory tracking technologies such as RFID, and conducting thorough audits to promptly identify and rectify discrepancies. Additionally, fostering a culture of accountability and transparency within the organisation, coupled with data analysis to identify patterns and root causes of shrinkage, enables businesses to develop targeted strategies for prevention and mitigation. By implementing these measures proactively, businesses can significantly reduce the risk of shrinkage and protect their inventory assets effectively.

RFID Technology 

RFID (Radio-Frequency Identification) technology has revolutionised stock tracking and management processes by offering efficient and automated solutions. In this system, RFID tags, consisting of a microchip and an antenna, are attached to items or products. These tags emit radio waves that can be picked up by RFID readers, allowing for seamless identification and tracking of inventory items.

One key advantage of RFID technology in stock tracking and management is its ability to facilitate real-time inventory visibility. Unlike traditional barcode systems that require line-of-sight scanning and manual input, RFID enables bulk scanning of items, even within packages or containers, without a direct line of sight. This capability significantly reduces the time and effort required for stocktaking and inventory reconciliation, leading to improved accuracy and operational efficiency.

Moreover, RFID technology enables automated inventory management processes, such as receiving, picking, and replenishment. As items pass through RFID readers installed at various checkpoints within a facility, their movements are automatically recorded in the inventory management system. This real-time data ensures timely replenishment of stock, minimises stockout and helps optimise inventory levels to meet customer demand.

Furthermore, RFID technology enhances security and reduces the risk of theft or loss by enabling precise tracking of items throughout the supply chain. Each RFID tag is uniquely encoded with product information, allowing for granular tracking of individual items from production to distribution. This visibility enables swift detection of anomalies, such as unauthorised removal or tampering, enabling proactive measures to mitigate potential losses.

Supply Chain Management

Stocktaking is a key component of supply chain management, providing accurate inventory data that informs decision-making across the supply chain. It helps in procurement by determining reorder points, aids production planning by scheduling activities efficiently, and facilitates order fulfilment by prioritising picking and packing. Additionally, stocktaking supports inventory optimisation efforts, leading to reduced carrying costs and improved overall performance.

Warehouse Organisation

Warehouse organisation is paramount for efficient stocktaking processes, as it directly influences accuracy and productivity. Well-organised warehouses ensure inventory items are stored logically, reducing the time and effort needed for counting and tracking during audits. This organisation also promotes smooth workflow and operational processes, enabling employees to navigate storage areas easily for retrieval or replenishment, thus maintaining productivity levels during stocktaking activities.

Moreover, warehouse organisation enhances safety by minimising clutter and creating clear aisle-ways, reducing the risk of accidents or injuries. Investing in logical storage systems, maintaining clear pathways, and adhering to best practices in warehouse layout contribute to streamlined stocktaking procedures and optimised warehouse operations.

Supplier Relationships

Strong supplier relationships play a pivotal role in ensuring inventory accuracy by fostering collaboration and communication throughout the supply chain. When businesses maintain strong relationships with their suppliers, they gain access to reliable and timely information regarding incoming inventory shipments, including delivery schedules, quantities, and product specifications. This transparency enables businesses to update their inventory records accurately and proactively plan for incoming stock, reducing the likelihood of discrepancies or stockout.

Additionally, strong supplier relationships can facilitate the implementation of vendor-managed inventory (VMI) or consignment inventory programs. In these arrangements, suppliers take on a more active role in managing inventory levels on behalf of their customers. By allowing suppliers to monitor stock levels and replenish inventory as needed, businesses can streamline their inventory management processes and improve accuracy. Furthermore, suppliers with whom businesses have strong relationships are more likely to prioritise their orders, expedite deliveries, and provide timely support in case of inventory discrepancies or emergencies, further enhancing inventory accuracy and reliability.

Types of Inventory

There are many different types of inventory management, but which is right for you?

EOQ Inventory 

Economic Order Quantity (EOQ) is used in stock management to help work out the optimal order quantity to minimise total inventory costs. It considers factors such as demand rate, ordering costs, and holding costs to strike a balance between holding excess inventory and incurring frequent order costs. EOQ helps businesses maintain efficient inventory levels to meet demand while minimising costs associated with storage and ordering.

JIT Inventory

Just-in-Time (JIT) inventory management is a strategy where inventory is received and utilised only when needed in the production process or to meet customer demand. JIT aims to minimise inventory holding costs by reducing excess inventory levels and associated carrying costs, such as storage and obsolescence. Instead, inventory is ordered and received just in time to be used, allowing businesses to operate with lower inventory levels and less tied-up capital.

JIT relies on efficient supply chain management, reliable suppliers, and streamlined production processes to ensure that materials and components are delivered precisely when needed. By minimising inventory levels, businesses can reduce costs and improve cash flow, while also increasing efficiency and responsiveness to changes in demand. However, JIT requires careful planning and coordination to mitigate the risks of stockout or disruptions in the supply chain.

Serialised Inventory

Serialised inventory involves assigning a unique serial number to each item in a company’s inventory, allowing for precise tracking throughout the supply chain. This practice enhances inventory visibility and accuracy, aiding in identifying discrepancies and preventing loss or theft. Furthermore, it improves product traceability, enabling targeted recalls and minimising the impact on customers and brand reputation during quality issues or recalls.

This method facilitates better warranty and after-sales support by tracking warranty information and service history efficiently. It also aids in inventory optimisation and demand forecasting by providing detailed usage patterns, enabling informed decisions on stock levels and allocation. Overall, it offers businesses greater control, visibility, and efficiency in inventory management, leading to improved operational performance and customer satisfaction.

Inventory Turnover

Inventory turnover is a financial ratio that measures how efficiently a company manages its inventory by calculating the number of times inventory is sold and replaced within a specific time period, typically a year. It is a measure of how quickly a company’s inventory is sold and replenished.

The formula to calculate inventory turnover is:

Inventory Turnover = Cost of Goods Sold (COGS) divided by Average Inventory

Where:

• COGS represents the costs that are attributable to the production of the goods sold during a specific time period.
• Average Inventory is the average value of inventory held by the company during the same period.

A high inventory turnover ratio indicates that a company is efficiently managing its inventory by quickly selling and replacing goods. On the other hand, a low ratio may suggest inefficiency in managing inventory, such as overstocking or slow-moving inventory.

The frequency with which inventory is sold and replaced within a specific time period varies depending on the industry, business model, and market demand. Some industries, like retail or fast-moving consumer goods (FMCG), typically have higher inventory turnover rates due to their nature of fast-paced sales and replenishment cycles. Other industries, such as manufacturing or heavy equipment, may have lower turnover rates due to longer production cycles and sales processes.

SKU Management

Stock Keeping Unit (SKU) management involves assigning unique codes to products for easy identification, organising inventory, tracking stock levels, facilitating order fulfilment, and aiding in forecasting and planning. It’s essential for efficient inventory management across different industries.

Cost of Goods Sold

Cost of Goods Sold (COGS) refers to the direct costs associated with producing goods or purchasing inventory that has been sold during a specific period. These costs typically include the cost of raw materials, labour, and overhead expenses directly attributable to the production or purchase of the goods sold.

Accurate stocktaking contributes to calculating COGS by providing precise data on the quantity of inventory purchased, produced, and sold within a given accounting period. When conducting stocktaking, businesses count and record the actual quantity of inventory on hand, enabling them to determine the cost of goods sold more accurately.

How to stocktake better

Speaking of how to stocktake better, we have gathered 10 handy stocktaking tips from the team here at ADP Distribution to help you get started. Check them out below!

• Advance planning matters

Stocktaking can take hours, even a full day, so choosing the right time to do it is crucial. It requires good knowledge of the work pattern at the warehouse to find a convenient time when the staff are less busy and cause as little disruption as possible. 

• Be smart with your stock placement

To optimise efficiency, you should carefully organise the goods you have in stock. For example, any stock that’s already been sold should be kept in a separate area to avoid confusion in the count. If you have to completely re-organise your warehouse and physically move things around, don’t hesitate to do it; it will be worth it. 

• Communication is key

Having a proper plan of action for stocktaking day is one thing but communicating it to everyone is another. You have to ensure that every staff member involved knows what they are expected to do and how to do it, otherwise, things are bound to go wrong. Also, it’s important to make everyone aware that a stocktake will be taking place. You don’t want it to come as a surprise as it may interfere with something else that has been planned without your knowledge. 

• Know what needs to be counted

All stock, including dead stock, cycle stock and safety stock, has to be counted. However, missing to do something by mistake is easier than you may think. This is why before you even start counting, you need to have a clear idea of what stock you own and what needs to be counted on the day. 

• No cutting corners! 

Without accuracy, stocktaking is completely pointless. You might be tempted to think that if the system says 24 items should be there and you know that each box contains that same amount, then if there is one box on the shelf, there must be 24 items there and you can just mark that on your spreadsheet. Yet, something inside that box can be missing or defective, so even though it may be easier to guess, you should never do that.  

• Have your stock sheets at hand

Get your most up-to-date records printed out, so that when you start doing the stocktake, you can enter the real number right next to the one the system thinks you have. This is the easiest way to spot and later, validate any discrepancies. 

• Barcodes make your life easy

Manual counts are prone to human error. If you are using a barcode scanner, you can process more information faster and more accurately. It’s a win-win, really. 

• Keep your records up to date

A perfect stocktake will be entirely wasted if you don’t enter the data you found into your inventory management system. Whether you use a traditional, paper-based method, or a digital system to track your inventory, you must make sure that the latest, most accurate information is recorded in your files. 

• Take market changes into account in your valuation

Market prices change and that can affect the valuation of your stock. If the price of a certain item has dropped significantly since you’ve purchased it, for example, you should value it at its current price. That way you get a realistic view of your finances.  

• Be a good listener 

Often the people who do the job day in and day out are the ones who know best what the root issues are. Keep an open mind and listen to the employees who are involved in the stocktake. It could help you correctly analyse the outcome of the stocktake and identify areas for improvement.  

How can ADP Distribution help 

Stocktaking can be overwhelming, so here at ADP Distribution, we have a trained in-house warehousing team that can take care of this for you.  We can safely keep your goods at our large warehouse facility in Cradley Heath where we can also handle the entire stocktaking procedure for you, saving you money, time and stress.

Get in touch with us today to see how we can help!