Stock Control: What It Is and How to Know If It’s Right for Your Business

Introduction

I want to talk about stock control :

• what different options are available
• which options suit your business model
• which options do not cost more in administration than they save in “shrinkage”

Stock control, or inventory control, is the process of managing, monitoring and verifying a business’s stock to consistently meet customer demand, prevent shortages and overstocking and avoid financial losses . Effective control involves optimising inventory, reducing storage costs, improving demand forecasting, enhancing operational efficiency, and boosting the customer experience . Strategies include managing inventory losses through periodic counts and record reviews and utilising technology.

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What is Stock Control and What are the Costs ?

As part of your day to day business trading, you will be selling items that you have purchased or manufactured from raw materials.

You could be buying in “finished products” at a cost, that you then markup and sell eg a spare parts retailer.

You could be buying in “raw materials” at a cost, that you then process at a cost to create “finished products” that you then sell eg a dress maker.

Unless you are a drop shipping outlet, you will generally have stock on hand.

Having stock sitting on your shelves is a cost to your business.

Not turning over your stock fast enough may lead to waste due to spoilage or obsolescence.

Stock is also subject to “shrinkage” ( A polite way of saying theft ).

What is often not allowed for is “opportunity cost” … if you have too much stock on your shelves for too long, would it not have been preferable to have had something else in stock ? Something that could have been sold ( turned over ) more times in the same period ? At a profit ?

You also need to consider the administrative cost of setting up and maintaining stock control.

Same Result – Different Processes

Consider a Restaurant with tasty food. The owners are engineers and like controlling everything. Every time they sell a butter chicken they want to account for the grams of spice used to make the sauce. 

This means :

• Creating each spice as an INVENTORY PRODUCT and entering SUPPLIER INVOICES for those spices.
• Creating chicken as an INVENTORY PRODUCT and entering SUPPLIER INVOICES for chicken purchased.
• Creating tomatoes as an INVENTORY PRODUCT and entering SUPPLIER INVOICES for tomatoes.
• Creating all the other ingredients as INVENTORY PRODUCTS and entering SUPPLIER INVOICES for them.
• Somebody then needs to do a PRODUCTION RUN to create the sauce using all of the other INVENTORY ITEMS that also need to go through the PURCHASE process.
• This will then put “butter chicken sauce” into stock.
• You then need to create a RECIPE that says something like “every time a butter chicken is sold take out of stock x amount of chicken and x amount of butter sauce”.
• If all of that butter chicken sauce is not used and “expires”, then you need to WRITE IT OFF.
• Repeat for tikka masala, korma and every other sauce you use.

Is it doable? Of course it is, but is it cost effective ?

By the way, this is a true story !

YumaPOS gives you the ability to do very complex stock control in your SAAS, but you need to weigh the benefits against the costs.

Sometimes, it is of more benefit to simplify the inventory process.

Using the above example, the same end result could have been achieved, with less administrative nightmare, by :

• Creating an INVENTORY PRODUCT called “Bulk Chicken” and entering SUPPLIER INVOICES.
• Immediately expensing as BILLS, the spices and tomatoes.
• Once a week physically count the chicken you have on hand
• The “shrinkage” becomes your cost of sale

Quicker, easier, less administration …. and you still maintain control over the expensive protein.

Stock Control Benefits

Key benefits of using stock control :

• Prevent Understocking : Determine the minimum amount of an ITEM you need to hold to prevent stock outs, so you don’t miss out on making a sale.
• Prevent Overstocking : Determine trends and how many times you turn an ITEM over. Excess stock represents not only dead money but also an opportunity cost.
• Improve Cash Flow : Optimising minimum and maximum stock levels means you are avoiding tying up money in slow moving stock & have more funds to buy faster moving stock. The better allocation of resources equals improved financial performance.
• Customer Satisfaction : Having “fresh” stock available to your customer when they want it means timely deliveries and a reliable service. You are building trust and encourage repeat business.
• Minimise Wastage : A properly planned stock control system reduces obsolescence.
• Minimise Losses : When your staff know you are monitoring stock, theft is reduced.
• Accurate Record Keeping : Realtime updates leads to informed decision making.
• Increased Operational Efficiency : Live “on hand” reporting means your staff are not running around manually checking on stock availability.
• Better Forecasting : Accurate stock reporting allows you to make better informed decisions about purchasing and budgeting. This allows for seasonal fluctuations.

“Effective stock control brings significant advantages to businesses by ensuring that inventory is properly managed, losses are minimized, and resources are efficiently utilized. It contributes to operational stability, financial accuracy, and customer satisfaction.”

auditing accounting

Stock Control Costs

No stock control is obviously the cheapest, but the amount of data you get back is minimal. Your business model may very well be suited for this. Rely on sales reps or “eye-balling” to order raw materials and stocks. Long weekend coming up , so order a bit more. Perform ad hoc stock counts for the accountant.

Where you have high value items ( like alcohol & cigarettes ) that are subject to “loss” …. maybe you will do full stock control on those. Enter supplier invoices to increase SOH, use recipes to reduce SOH when items are sold. Perform frequent stock counts and investigate variances. I know of one chain that do full stock control on everything but only do yearly stock counts, but they count cigarettes every week. Even if you don’t stock control them, where you have high value and easily “lost” items, make your staff count them regularly … at least they will think you are monitoring stock 🙂 Remember that it is not just the cost of doing the control, but the opportunity cost … every “shrinkage” represents a loss of profit and the need to replace the “missing” item.

We looked at complex recipes earlier. As an alternative, why not create INVENTORY ITEMS like “BULK CHICKEN” and “BULK SEAFOOD”. Enter your suppliers invoices against them. Every week, estimate how much you have left and “write off” the difference as being used. You can then compare that to your sales and how much should have been used. While not as accurate, if you are using much more than you are selling, it is time to investigate.

If you are relying on staff to make day to day sales, a well thought out stock control plan will let you remotely monitor and manage stock purchases.

A Balancing Act

My final words.

In the ideal world :

• You would know when and where every bit of stock went.

In the real world :

• Concentrate on the high values.
• Monitor the easily “lost” items. A lot of low cost items is worse than one big dollar item.
• Pick and choose what best suits your business model and your needs.
• Don’t build an administrative nightmare that costs more to maintain than you get back.