Stock Inventory - Concept, Methods, and Best Practices 

by Corynn Anderson in August 28th, 2022

If your company works in the commercialization of products, you've probably heard about inventory control, but for anyone unfamiliar, we'll go over what stock inventory is and the benefits of implementing it. Does your company already apply the correct techniques of how to carry out an inventory of stock? Let's find out by taking a look at some stock inventory best practices!


What is stock inventory?

Controlling a company's product inventory is an activity that demands a lot of attention. One of the ways to ensure efficient inventory tracking is through the use of management software that proposes to take stock inventory. The technology helps a lot to keep the inventory organized, avoid problems with the lack of products needed for sale, and control the excess of idle goods, which can compromise the business' working capital. Even better are the systems that offer the inventory control module integrated with other sectors, such as:

  • Direct Sales
  • Purchase of Products
  • Financial Control

The management tool automates taking inventory of the company's stock, facilitating the day-to-day work and increasing productivity. Employees can use the time that they previously applied to check the stock to perform other more important functions. However, even with all the technology available, the entry and exit of products must be monitored to prevent fraud, theft, and damage.

Stock Inventory Definition and Concept

In practice, stock inventory counts all items and products stored in stock at an exact moment. From this count, this result must be compared with what is registered in the digital control. This is the correct way to take stock inventory and check if there is any discrepancy between the results. If so, the result indicates an error or fraud.

Manual counting is still the most efficient way to deter fraud and correct mistakes that may have been made on a busy day, for example, entering a wrong value in the system. Therefore, it is still strategic for your company and employees to know how to take a manual stock inventory and create an efficient counting routine.


What are the types of existing stock inventory?

Now that you understand the concept of what inventory is, it's time to get to know the different types. The basis of any inventory is product count. However, there are a few different ways to take stock inventory.

The main methods of how to carry out a stock inventory are listed below:

  • Rotating/Cyclic Stock Inventory: carried out in cycles that can be weekly or monthly.
  • Perpetual/Permanent Stock Inventory: performed in real-time and requires the use of automated tools. Efficient and practical, but it needs sporadic manual counting to deter fraud.
  • General Stock Inventory: is the collection of items at a given time. It needs the company's operations to be halted to be carried out.
  • Rotating Stock Inventory: Items are divided into groups and counted separately. It is best suited for a punctual survey.


Methods for Taking Inventory of Stock Levels

There are five types of stock inventory possible within a company. Each of them presents relevant information according to the frequency required and the method used. Understand what types of stock inventory are and what the purposes of each are.

1. Annual Inventory

The annual stock inventory, as the name implies, is carried out annually. Annual inventory is often used to balance the fiscal year and can effectively update spreadsheets and product tracking. That way, you'll be able to know exactly what's in stock before starting a new year of work.

Despite being one of the most common alternatives in business, it is not always the most efficient. That's because, unfortunately, it requires a lot of preparation time to be completed, which can lead companies to close for a few days while the process is carried out. Since you have a very large amount of information for the entire year, when you find something that doesn't match the record it's more difficult to identify where the error is.

2. Partial Or Dynamic Inventory

In the partial or dynamic inventory model, only a part of the company's stock is valuated. Companies that have, for example, a large warehouse with several types of products may need to have greater control of some more strategic items. In these cases, a partial inventory is carried out, evaluating only some types of products.

3. Rotating/Cyclic Stock Inventory

This method may be the most suitable to maintain continuity in control and ensure practicality in the inventory. Through rotating /cyclical stock inventory, products are divided into groups to facilitate counting and avoid doing it all at once. In this way, the process becomes faster and more efficient. The frequency of inventory counting will vary by company as well as the control organization. An example is the daily count of different products.

For example, if you own a clothing store, you can break it down as follows:

  • Monday, count jeans
  • Tuesday, count dresses
  • Wednesday, count shirts
  • Thursday, count skirts
  • Friday, count shorts

If your company has a good inventory turnover, the time between counts needs to be short to ensure greater control.

4. Periodic Inventory

In periodic inventory, as the name implies, taking inventory of items does not happen very often. In this case, products are counted at the end of a predefined period by the company, varying according to the type of business, need, and stock turnover. This method will allow you to update inventory system data to avoid possible human error. In addition, it can be used to make detailed financial statements when needed.

5. General Inventory

Often the most time-consuming of the different models is the general inventory. This model covers not only stock, but all the company's goods including things like inputs, machinery, and warehouse items. When evaluating a company's equity, this is the best model to use.


Taking Stock Inventory In 5 Steps:

Having understood what stock inventory is and knowing its types, it's time to get your hands dirty. Taking inventory of stock is not a difficult task, but it can be rather tedious depending on the size of the company and the number of items to be inventoried. However, there are some things that can make this process more efficient:

1. Choose the Best Time

Choose a period when there is less movement in the business or while the business is closed. You may need to pay overtime for these hours if the stock inventory is performed by your in-house staff, but the investment is worth it. It can also be a good idea to hire an outside firm that specializes in taking stock inventory, to help ensure greater accuracy.

2. Make Sure the Items Are Organized

To make the work easier, the inventory must be organized. Before starting the count, take the time to put everything in order, and ensure that similar items are together. This greatly speeds up the inventory process.

3. Create A Code for Each Item

To facilitate counting items, a good idea is to assign a code to each product, which can be a simple numeric (001, 002, 003, etc.) or barcode. Don't forget to consider product attributes when these are important, such as colors and sizes, for example. Note that creating item codes is something that is done when products are created and initially added to the inventory mix.

4. Count the Items in Each Group and Record the Result

This is the most essential element of what stock inventory is. All items must be counted and the result recorded. But if you've gone through the steps above, the count should be quick. Just remember to check the result to avoid mistakes.

5. Compare the Results with What is on Your Record

Cross-checking the count results with what is recorded in your control system is one of the most important parts of the entire process of taking inventory. This step becomes much simpler when the registry is computerized. If you find any significant differences, it's worth investigating as it could indicate fraud or serious errors in the company processes. Using an automated business management tool, or an ERP solution with inventory tools, helps you facilitate good company-wide management through accurate data, including inventory metrics. With ERP software like NetSuite, all sectors of a business are connected, and information is transmitted automatically, minimizing the possibility of errors due to a lack of accurate information.


How Frequently Should You Take Inventory of Stock?

When determining the appropriate frequency of stock inventory you will perform, you need to assess your company's needs, such as what the business processes are and how often your inventory turns over. The first step is to analyze the inventory turnover and the value of the merchandise. This information will help you figure out if the inventory tracking should occur in real-time, monthly, quarterly, or annually. Keeping track of inventory data trends can help you identify situations where a higher frequency or different processes may be needed. Among the most common situations are:

  • frequent loss of a specific product
  • products with breakage or imperfections observed during order picking or stock replenishment
  • targeted products, which are often subject to theft
  • previous inventories with data divergences
  • products considered overstocked

The frequency of stock inventory will vary according to each company's needs. Therefore, create a routine that makes sense for your business model and that, in addition to being practical, is efficient. While annual counting may be a choice made by many companies, it is not always recommended.

Stock Inventory Frequency Example

Suppose we are evaluating a company that has a high turnover rate. In that case, only taking stock inventory once per year can be a problem. It would be difficult to identify exactly where and when errors in the data are taking place, what is causing the errors, and it would not allow the problem to be addressed in a timely manner. To avoid possible problems and losses, the alternative is to carry out inventories more frequently. If you have a higher frequency at which you audit your inventory, it is easier to identify problems and make any necessary corrections.


How Much Does Taking Stock Inventory Cost?

Taking stock inventory does not have a predefined value. For many businesses that serve companies with this demand, the price is stipulated according to the product type and the number of goods. Therefore, most of the time, prices are stipulated according to the project and type of contracted inventory.

If a company takes stock inventory more frequently, there is even the possibility of using some control tools. Technology, in this case, can be a great ally in reducing the time spent and ensuring efficiency. However, in the case of annual inventory, for example, or general, which requires more complex analyses, the best alternative is often to consider the work of a qualified professional.


Stock Inventory Best Practices

Before you start taking your stock inventory, you need to keep an eye on some details.

1. Choose the Correct Inventory Model

Assess your company's needs and your business model, and from there, choose the model that makes the most sense for your company. Once the inventory model has been chosen, maintain the appropriate frequency.

2. Use Management Software

For many companies, especially those with a higher frequency to carry out inventories, it is important to have inventory management software. These tools will make a company's day-to-day operations much more efficient, and can especially help with inventory management. By using ERP software with multiple fully integrated modules, your inventory management software can connect directly to other key business modules such as WIP and Routings Management or Advanced Order Management.

3. Back Up the Results

You must keep a record of the data that was collected when you took stock inventory. Again, if you are using inventory software, you can store your data there. Otherwise, you will need to be sure to create an internal record-keeping process that works well for your company. Inventory stock information from past dates will guide actions in the short and long term. For example, a year from now, you will be able to assess how your company's last 12 months were, identify products that sold more, products that were stocked longer, and which errors were most common during this inventory period. This information can be used to make strategic decisions regarding business operations.

4. Evaluate the Data Collected

As stated earlier, information is valuable and needs to be used correctly. When finalizing an inventory of stock, always evaluate the data and make the necessary adjustments while considering the sustainability and growth of the company. If you notice any problems or discrepancies, be sure to correct them quickly. If you notice business opportunities, evaluate what the possibilities are and act to improve business results.


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