Stock control

1. Difference between stock and inventory

Stock and inventory are terms that often used interchangeably, but there is a difference:

• stock generally refers to products that are ready to sell

• inventory covers everything owned by a business to make and sell products including raw materials and unfinished goods.

Both need effective management systems to track all items. If you are a manufacturer and retailer, these systems will be integrated.

This guide focuses on stock control for retailers selling finished products.

2. How much stock should you keep?

Deciding how much stock to keep depends on the size and nature of your business, and the type of stock involved. If you are short of space you may be able to buy stock in bulk and then pay a fee to your supplier to store it.

Keeping little or no stock

This might suit your business if it's in a fast-moving environment where products change rapidly, the stock is expensive to buy and store, the items are perishable, or replenishing stock is quick and easy.

Advantages of keeping little or no stock and having it delivered when needed include:

• efficient and flexible model - you only have what you need, when you need it

• lower storage costs

• you can keep up to date and change your offering without wasting stock.

Disadvantages include:

• meeting stock needs can become complicated and expensive

• you are more dependent on the efficiency of your supplier

• you might run out of stock which impacts your sales

• you may be more vulnerable when local or global events impact supply chains.

Retailers selling through online marketplaces such as Amazon, may store all stock in their fulfilment centre for them to pick, pack and deliver orders.

Keeping lots of stock

This might suit your business if it is hard to anticipate how much stock you need and when, you can store plenty of stock cheaply, the items you buy are unlikely to go through rapid developments, or they take a long time to re-order.

Advantages of keeping lots of stock include:

• easy to manage

• low management costs

• you are unlikely to run out

• bulk purchases may be cheaper.

Disadvantages include:

• higher storage and insurance costs

• certain goods might perish

• stock may become obsolete before it is used

• your capital is tied up.

3. Stock control systems

Any stock control system must enable you to:

• track stock levels

• make orders

• issue stock.

The simplest manual system is a stock book to keep a log of stock received and stock issued. This suits small businesses with few stock items and can be used alongside a simple reorder system. For example, the two-bin system works by having two containers of stock items. When one is empty, it's time to start using the second bin and order more stock to fill up the empty one.

However, stock or inventory management software is now easy and cost effective for most small businesses to use and makes it much easier to quickly check your stock valuation or how well a particular item is selling.

Choosing a system

Research online or talk to others in your sector and size of business about the software they use, or contact your trade association for advice.

Make a list of your requirements, for example:

• multiple prices for items

• prices in different currencies

• automatic updating, selecting groups of items to update, single-item updating

• using more than one warehouse

• quality control and batch tracking

• multiple users at the same time

• automated alerts (and reordering) for low stock levels

• real-time analytics, such as value and turnover

• reporting, such as demand forecasting

• wider inventory management, including raw materials.

You will need to think about whether you need a machine-readable product tracking and identification system to efficiently maintain a continuous check on stock location. The most common examples are barcoding or radio frequency identification (RFID) tagging, which can be read with scanners at a distance and through cardboard boxes. 

Consider integration with other systems

Look at what other systems you would like to integrate with, including:

• point of sale (POS), customer relationship management (CRM) and payment systems

• accounting software such as Xero

• e-commerce platforms such as Shopify or online marketplaces such as Amazon to update stock levels when sales are processed.

Before implementing a system

The system will only be as good as the data put into it. Complete a thorough stock take before any new systems goes 'live' to ensure accurate figures from the beginning. 

It's a good idea to run any previous system alongside the new one for a while, giving you a back-up and enabling you to check the new system and sort out any problems.

4. Monitor stock quality

Quality control is a vital aspect of stock control - especially as it may affect the safety of customers or the quality of the finished product.

Efficient stock control should incorporate batch tracking, which is relatively straightforward with modern systems. This means being able to trace a particular item backwards or forwards from source to finished product, and identifying the other items in the batch.

Goods should be checked systematically for quality, so faults can be identified and the affected batch located and withdrawn. This will allow you to raise any problems with your supplier and ensure the safety and quality of products you sell.

Radio Frequency Identification (RFID) can be used to store information about a product or component's manufacturing date, to ensure that it is sold or processed in time. The system can also be used to trace faulty products quickly and efficiently.

The British Standards Institution (BSI) has a scheme to certify businesses that have achieved a certain standard of quality management. Achieving the standard is one way of showing customers and regulators that you take quality control seriously.

For more information on managing goods, read our guide on storing goods and materials.

5. Stock taking

Stocktaking is a systematic process that involves making an inventory, or list, of stock, and noting its location and value. 

By checking the physical items, the aim is to:

• see if there is any discrepancy between the reality of what you are storing and what is recorded on your systems

• identify any over or under stocking, mismanagement, or theft

• fulfill your duty to keep accounting records, including the stock the company owns at your financial year-end and the stocktakings you used to work out the stock figure, as this impacts the balance sheet figure for assets and your tax liabilities.

Stock taking may be a daily or weekly exercise for perishable or high-value items, or monthly, quarterly or even annually, for lower turn-over and lower value items. 

Planning a stock take

A stock take needs to be planned properly. 

• Identify who will be involved and how much time they will need.

• Clearly explain the process and ensure the same methodology for counting is used, including any techniques such as weighing and measuring, and avoiding double-counting.

• Ensure everyone who needs a barcode/RFID scanner has one.

• Choose your methods for double checking, and recording any discrepancies.

• Where possible, run it out of office hours, or in small chunks or phases so that new sales do not distract staff or affect accuracy.

• For larger items in warehouses, be aware of health and safety, especially if temporary staff are coming in to help.

Check if your auditor needs to observe how staff implement the stock take to evaluate it has been done appropriately, for example by doing their own samples to check alongside your records.