Putting the “control” back into stock control

Products and services are at the core of every Australian business, so managing and controlling your stock is vital to the success of your business. But what is it that makes a good stock control system? Other than being able to calculate stock on hand and value your stock, these basic requirements don’t really necessitate “control” of your stock. You need some very important insights into your stock.

Stock Cost and Value

You cannot understand the financial position of your business without understanding the value of your stock on hand. In the current market, some software uses the FIFO (First In, First Out) method of valuing stock. Whilst this provides a very accurate representation of the stock you have on hand, it is dependent upon the movement of stock in the order in which it was purchased. In most retail environments this isn’t feasible and trying to manage this style of selling can be quite time-consuming. This also adds the complication of deciding what price to sell products at.

Arguably the most effective way is by average cost, based on stock levels at a given time. It is important to choose a stock control system that adds extra intelligence to this process by calculating the average cost based only on the actual items you have in stock. This allows for a greater insight into gross margins, cost of goods sold and stock value. Using this method also means systems can calculate a sell price based upon a mark-up or margin on average cost, ensuring you are always making your expected margin.

Stock Exception Reporting

To take full control of your stock, it’s important that your system can report potential errors before they occur. Ensure your stock control system allows you to report on negative stock quantities, to identify where items are being sold using the incorrect code and therefore potentially not being sold at the correct price. Your stock control system should also have the ability to report on items that are set up with low or negative margins or mark-ups, allowing you to catch these before they are sold at a loss.

Stock Ordering

Efficient ordering to meet your businesses demands is vital for effective stock control. For some businesses this simply means having full shelves, using minimums and maximums to trigger ordering. This however can be quite laborious, particularly where there are seasonal trends. You also risk being in a position where you have stock sitting on shelves for long periods of time, which can have a major impact upon stock control.

Intelligent ordering systems can overcome these issues by calculating orders based upon actual sales for a given period of time. Depending on your geographic location and ordering habits, it ensures that your system accommodates the interval you order in and the transit time from order to shelf. It should be able to calculate orders for any snapshot of your trading period, whether  for Christmas, end of financial year or Father’s Day sales.

Of course, your business may adopt an ordering timetable that requires a combination of all methods of stock control. That flexibility will allow your business to maximise cash flow at low trade periods and end of financial year, whilst boosting shelf levels at busy times.

Final Thoughts

Without efficient stock control, ordering and pricing you can’t accurately determine the financial position of your business. That is why stock control should be at the very core of your POS, Accounting or ERP package. If not, it may be time to make the move and gain control over your business.

Joanne Hendriksen, Implementation & Support Manager, Foresiight

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