What is Stock Management?
Used interchangeably with inventory management, stock management covers all practices implemented in your business to track and control its inventory through purchase, manufacture, storage and usage/sale.ย
Stock management comprises the complete journey of goods – from raw materials to finished products – to ensure that the correct items are in the right place at the right time. It is crucial for the success of any sustainable business, so letโs dive in and find out how you can achieve that for your organisation.ย
Why is Effective Stock Management Important?
Stock/inventory is a vital asset to any business as it is a physical manifestation of capital; therefore, effective management of stock can liberate a companyโs finances and improve short-term cash flow and liquidity. How can a business with inadequate stock management hope to succeed in a marketplace, with competitors who undoubtedly will be practising it effectively?
To manage stock effectively, you must understand the different types of stock and the unique characteristics and demands. Doing so ensures that your business keeps the various types of stock at reasonable levels, avoiding bloating via overstock and tying up capital unnecessarily.
What is Stock?
Put simply, stock is any amount of products a company holds with the intention of making saleable. The term stock can reference anything – even intangible items such as software – so long as there is an intention for it to be sold, including raw materials.
4 Most Common Types of Stock
To implement an effective stock management strategy, you must be able to differentiate between the most common types of sock that you will come across. Those include the following main four types:
- Raw materials: stock with the intention of transforming into finished goods, through manufacturing
- Finished goods/ready-for-sale goods: stock intended to be sold to customers
- Work-in-progress: unfinished goods, typically at some undeterminable point in the manufacturing process
- Safety stock: extra inventory stored for times of increased demand or supply chain shortages
Stock Management for Retail
When we use the term retail we refer to any business that sells products to customers, not simply limiting the term to brick-and-mortar retail stores.
Retail can often be divided into a number of segments:
- Online: a business that sells products over the internet through a marketplace or an eCommerce fulfilment platform
- Offline: a business sells via a physical retail store or other physical location
- Multichannel: a business that sells in various places, typically both online and offline
- Omnichannel: an integrated selling experience across all of a businessโ retail channels
Some companies may, instead, sell goods via channels known as wholesale, which typically involves the selling of stock directly to other businesses (B2B) or via B2B eCommerce.ย
Whatever the type of selling arrangement your company chooses, its stock management should be appropriate to the retail model it deploys.
9 Things to Understand for Effective Stock Management
Your stock should be balanced at all times, without having too much or too little of certain products. For a business to effectively manage stock, it is vital to understand certain principles:
- Stock type: know each type of stock, its location and ensure full visibility
- Forecasting: ensuring that you know the quantity of stock needed to meet the demands for an upcoming period
- Stock purchasing: understanding when stock is needed and how to create purchase orders
- Storage of stock: knowing how much of each stock you can store and where it must be sent
- Stock analysis: effective use of sales analytics and metrics to make more informed decisions regarding your stock
- Effective handling: add efficiency to incoming inventory in terms of booking it in, packing it away and shipping out
- Tracking (multichannel): ensure visibility on the location of your inventory, including purchases (additions) and sales/shrinkage (subtractions)
- Accounting of stock: correctly record stock on all financial documents
- Stock management systems: automated stock management systems can simplify the overall process
The Benefits of Effective Stock Management
It may seem obvious, but there are several benefits of good stock control for your business, such as:
Optimal Daily Performance and Efficiency
Without effectively managing your stock and implementing good stocktaking practices, your day-to-day operations can quickly deteriorate. You could haphazardly store stock, order too much/too little or, simply, be unaware of the stock you have. A business running in such an environment will struggle to grow.
Positive Customer Experiences
Ensuring that you have desirable products at healthy stock levels means that customers will, ideally, have a positive transaction with your business. Doing so will make it much more likely that customers will return if they know your business is reliable and well-stocked.
Cash Flow
Optimising your stock management means that you wonโt unnecessarily tie up capital in inventory, meaning that cash is available to allocate elsewhere. Ensuring effective stock levels and analytics is important to a good cash flow.
Mitigate Shrinkage
One of the worst outcomes for a retail environment is stock shrinkage – spoiled, stolen or deadstock – and effective stock management can ensure a business does not order too much stock, not store it incorrectly.
Facilitate Company Growth
A business that learns to manage stock effectively when said company is smaller will be more capable of aligning effective stock management as it grows and expands its operations – particularly if they grow at a steady, modular pace.
Fulfilment Efficiency
Stock management that is effectively administered means that storage is optimised, therefore it can be picked and packed with little difficulty and sold/shipped to customers easily.
10 Key Stock Management Efficiency Techniques
Though effective stock management can be challenging to implement initially, here are some common behaviours exhibited by successful retailers:
- Select fulfilment avenues that are appropriate to your business and the products it sells
- Analytics and forecasting are legitimate resources to be taken seriously
- Track and implement effective reorder points for each product
- Use Economic Order Quantity (EOQ) to order and store only adequate order quantities
- Each variant of a product should have its own bin in the warehouse
- The older stock should be sold first: the FIFO method (First In First Out)
- Incorporate ABC analysis
- Continue to track metrics
- Conduct regular stock counts
- Use automation where possible and appropriate
Stock Management for Small Businesses: Periodic Vs. Perpetual Stock Management
Smaller businesses should prioritise incorporating effective stock management as soon as possible, two common approaches are perpetual and periodic stock management.
Perpetual Stock Management
Such a stock management system uses electronic tracking on a consistent basis, using point-of-sale (POS) systems to track inventory as it is sold. Such systems are more expensive in comparison to physical stock counts, but the results are more accurate (removing human error) and provide data in real-time.
Periodic Stock Management
Cheaper than electronic tracking systems, this method relies on physical stock counts at specific times (typically weekly, monthly and quarterly). Such a method of stock tracking is more practical for smaller companies that store smaller inventories.
If you wish to discuss your options concerning stock management and order fulfilment, contact ADP Distribution today. With warehousing options, pick & packing and project management, as well as dedicated account managers, all warehousing and distribution can be handled by the professionals at ADP Distribution.
