For some businesses, they see stock control as simply an accounting/tax thing they have to do once a year on 30 June. They see it as a pain in the derriere and a little more. So I thought it was timely to share with you all the many reasons that stock control, often called ‘stock-taking’, is not only important but actually represents value in your business.
The Importance and Value of Stock Control
Improved Customer Service
In today’s society, everyone wants everything yesterday. I know myself, the best experiences I have are those where I order one day and it’s on my doorstep the very next day. Customers don’t want to wait weeks (or months – gasp) because you’re out of stock. A customer doesn’t want to walk into your store or business only to be told to come back in a week (or more) because you’re out of stock or have to get it from the warehouse, supplier or other sources. Chances are, they will simply go online or to your competitor to get the item far more quickly.
More Business Through Great Customer Reviews
Don’t be mistaken, but customer reviews do impact on your business. You might think that once you have the customer’s deposit, then the quality of service can drop (or certainly your care factor can) however, whilst the customer is locked into using your business, possibly because they’ve paid a deposit or signed a contract, if you lower the customer service experience then you can potentially earn yourself a low star rating review online. Remember also, people talk (either in person or online and socially). They will share a poor experience (sometimes wide and far) but they will also share a great experience. Others will select a business based on reviews so future business with apparently unrelated parties can be very much affected.
Over Buying
If you don’t know what you have then you are more likely to purchase the item again (erroneously) because you didn’t think you had it. Before I go grocery shopping I do a quick clean out of my refrigerator. Toss out anything dead, check use-by dates and then go shopping knowing what I really need.
Carry Stock Costs you Money
Carry stock costs you money. There is the money for the purchase of the item tied up in the stock you have on hand. There is the cost of your warehousing – whether that’s an office, small shed or large building – every square metre represents a cost. Your stock should be insured – yet another cost. Keep the stock in good order – whether that’s refrigeration, pest control or cleaning – again all costs associated with holding stock. By not having too much money tied up in stock you remove some of the financial strain on the business – allowing those funds to be used in other ways, such as marketing, wages or growth strategies.
Accounting
Yes, whether it’s for the ATO at the end of financial year, or your accountant wants to know, you then will need to do a stock take. The value of your stock is put on your balance sheet and is reflected as an asset. The objective of every business is that the assets are greater than the liabilities, so that the value of the business (equity) is a positive, and hopefully a growing positive. Knowing where you stand financially is important and every smart business owner will be reviewing their Profit Statements and Balance Sheet monthly to see that there is, in fact, improvement. Yes, inventory impacts your bottom line and this, in turn, impacts the amount of tax you may need to pay. Whilst few of us love paying tax, we certainly don’t want to be paying more than we legally should.
Re-ordering Costs Money Too
Very often when you re-order there is a cost to this. It might be as simple as a delivery fee. Additionally, we often get free delivery if the order is over a certain level. If you are ordering a larger quantity, then it may well be that you can negotiate a better rate. So by having sound stock procedures in place, you know what you have, what you need and very likely what you will likely need (based on stock history or jobs coming up). Putting in tiny orders here there and everywhere is the most ineffective way to purchase. Additionally, it chews up staff time. Someone has to place the order, then someone else has to receipt it, and yet someone else again will need to pay the bill. Potentially add in a staff member going to have to collect (because you need it urgently) or a courier fee and you are adding to the cost of panic buying versus having an organised, planned and well-maintained stock system.
Fraud & Theft Prevention
Whilst no business owner would like to think their staff would steal from them, the sad fact is that it happens and more often than the average person might think. I’m not just talking about a stamp here and there or a pen – I’m talking huge dollars. I was involved a few years back in some forensic bookkeeping of a business where financial analysis reports were showing something was amiss. Upon investigation, we found that one of the staff was walking out the back door (almost every night) with parts under his arm. The figures (in conjunction with chats with the owner) told us that something was wrong. That business never did stock takes but at least financial reviews were occurring. Had stock takes been done, two things would have occurred. The staff would know that missing parts would be noticed very quickly and would be less likely to steal, plus the matter would have been discovered much earlier. The staff member was sacked, but none of the items recovered. It could have been occurring for years.
Knowing What is Where = More Profit
When you know what is where and how much you have, you are able to fulfil an order much faster. No longer do staff need to search and seek to find an item, or even ascertain if it exists. That occurs with the simple click of a mouse. This reduces staff time, improves delivery speed and improves customer satisfaction. Improved customer satisfaction frequently equates to repeat business. All this improves the business’ bottom line with greater profitability.
Improved Staff Retention
Efficiency makes customers happy and your team will enjoy being more efficient, less frustrated and having happier customers too. If you have great staff, they will want to do the best job possible. So, I challenge you that stock control can equate (partially at least) to quality staff retention.
Catching Delivery Errors
Not all errors work in your favour; in fact, many works against you. If you are maintaining great stock records and systems, as an item comes in you will be checking off against the delivery docket (or packing slip) to ensure that if you were invoiced for 7 items that you, in fact, received 7 items. If you are slack in stock control, you probably are slack in receipting as well and you simply sign for the parcel, throw it in the corner and no-one is the wiser. That’s more lost profit, plus when you go to use item #7 and find there isn’t one … back to job delays and potential customer dissatisfaction, plus the need for an emergency order.
KPIs
Key Performance Indicators (KPIs) are often (although not always necessarily) a quantifiable way to measure what you are doing and how well you are doing it. For those businesses which carry a lot of stock, you will want to be tracking inventory turnover ratios. Poor stock control will eliminate you having any chance of doing this.
Inventory as Collateral for a Loan
Often (but talk to your specialist here) inventory and finished goods can be used in part as collateral for a loan. If you are considering selling your business or attracting investors or finance, then you need great systems in place and inventory control is one of those systems.
So, in summary:
- Implement an inventory system
- Do regular stock takes
- Have a clean out – items you can’t use – dispose of them
- Organise your stock and have clear labelling in place
- Ensure you have a re-order system which works for you
- Educate your team to keep it working well and organised.
If you have any questions around systems or business coaching, I’d love to hear from you – just give me a call on 0411 622 666.
