What is a Stocktake?

A Stocktake is a verification process where the physical inventory of a business is counted and compared with the amount on the books. If discrepancies are found, the amount on the books gets updated and the variance is recorded as shrinkage.

Stocktake is also called stock count or physical inventory count.

The Purpose of Stocktake

Retail businesses should perform a stocktake at least once in a year. Businesses that don’t use a POS system or have an inventory management system in place that tracks every movement, might need to conduct a stocktake more frequently.

This is important to get the real picture of the ending inventory in the business, so that financial statements can be generated accurately, and relevant financial ratios that assess the performance of the business can be calculated.

For example, if the actual value of the ending inventory turns out to be lower than the books, this will reduce the gross margin of the business, as it will increase the COGS.

Also, analyzing a stocktake report can show the business the different high-risk areas for shrinkage at the store, so it can create a stock loss action plan based on those findings, and minimize its shrinkage going forward.

Stocktake Procedure

The stocktake procedure goes as follows:

1. Create a plan for the stocktake that details the date of the count and the team that will be involved
2. Train the team on the physical inventory count procedures and the paperwork associated with it
3. Set cut-off times for inventory movements to, and from, the store
4. Segregate the areas of the store and label each area with a barcode tag
5. Assign the team members to their designated areas
6. Have each team count and record their designated area (either manually or by scanning or both)
7. Enter the results on the system and generate the report
8. Analyze the variance report and create an action plan accordingly

Best Practices & Considerations

Some best practices and tips to use while conducting a physical inventory count include:

• Conducting the inventory count at a time when trading volume is low.
• Conducting the count at a time when stock level is low, for example after sale period.
• Segregating the areas before the count and keeping similar stock close to each other
• Remembering to tag and count merchandise in special places, such as the outfits on the mannequins
• Creating a trained team of “counters” who will be trained well and used for stocktake at different stores
• Assigning part of the team to count using a scanner and another part to count manually after them and compare results on the spot to ensure accuracy.
• Checking and charging all the PDTs used in the count beforehand.
• Taking into account the inventory that has been sold the same day of the physical count, before generating the final stocktake report

The Stocktake Report

The stocktake report is a variance report that shows the discrepancies between what’s on the books and what’s physically there.

During the process, every item (SKU) will be counted and recorded, and at the end, the report is generated, which shows the existing quantity of each item, compared to the quantity on the system, and the variance between both quantities.

After that, this variance could be accepted by the management, and based on that the stock file of the business will be adjusted to reflect the correct amount, based on the count. Or this could be rejected, for example if the variance is too high, and another count is requested to verify those results.

Once the results are confirmed, they can then be analyzed or investigated to uncover the reasons behind the variances, and avoid them in the future.

Cycle Count

A cycle count is a more frequent procedure of physical inventory counting, but on a smaller scale. It usually involves a smaller area of the store or warehouse, and is used to conduct a spot-check to see if any large discrepancies are existing, which might raise red flags and need further investigations.

Cycle counts are a good, pro-active, practice to help reduce shrinkage.

Thank you for reading this article on Stocktake. You might also find the following free resources useful:

• Shrinkage
• Ending Inventory
• Inventory Management Guide