You might have thought in the past that the only reason to stocktake your materials and products is to provide those all important end of year figures to your accountant.
From this perspective, stocktaking almost certainly becomes a dreary, time consuming task as you as a business owner don’t get a whole lot out of the whole exercise - apart from knowing you have completed your tax obligations (yippee!?).
It’s therefore completely understandable that many businesses delay doing their stocktakes to the last minute or try to find reasons why they shouldn’t bother at all. So, what if I told you that stocktaking, if done strategically and regularly can actually lead to huge positive changes in your business: some of which will almost certainly directly increase your profits and improve your products?
Interested? Great! For starters, let’s go through the main reasons why you should be stocktaking:
1. Improve your stock ordering
Being aware of your stock levels through the year allows you to see when your materials are running low. This can enable you to plan your purchases well in advance for these situations, so you can keep sending your orders out the door without putting your customers on hold (or worse, marking your products as “sold out” on your sales channels).
Having more awareness of your material stock levels can also mean you can plan to purchase materials in greater amounts, which can lead to cost savings through taking advantage of bulk discounts.
2. Improve material supply issues
Stocktaking can allow you to identify issues with the materials you purchase, such as your vendors delivering less than anticipated or sending you damaged / unusable stock.
As an example, you regularly purchase a bag of 250 buttons from The Bead Company. If you suspect that this company is not actually sending you the full amount, the only way outside of regular stocktaking is to count them individually as soon as they arrive. For most businesses, counting each time you receive materials is completely unachievable so this type of loss can go unnoticed for significant amounts of time.
For the example above, if the company sends you 225 buttons each time rather than the full 250 as promised then this will mean each button will now have cost you more - if you paid 30 cents each for the buttons, this now becomes true “landed cost” of 33 cents each due to the missing 25.
You might be thinking, 3 cents - who cares? For starters, this is 3 cents that you will now lose directly from your profits from each product these materials are used to produce. If this is a widespread issue with your material purchases, or if the unit costs of the shortchanged materials are higher than the example, you’ll be losing much more than you anticipated over the course of the year - guaranteed.
With a regular stocktaking system in place, you’ll be able to identify if you are short at any time in the year and be able to take steps to rectify this situation - either by addressing the issue with your vendor or finding another vendor that (like you) is more accurate with their own stock processes!
3. Improve production issues
You can also use constant stocktaking to identify problems with your production processes. For example, you might not be aware of how much you lose in wastage - this can be easily uncovered via regularly counting your stock and comparing it to your records. Once you are aware of your wastage, you can then take steps to minimise it as much as possible. Maybe you are cutting your fabric in a less than optimal way which is resulting in a high amount of wastage: modifying your cutting strategy can help you achieve more out of your materials which can lead to increased profits.
4. Improve your pricing
Finally, being more aware of your exact usage can empower you to accurately factor in the costs of production to your products. You might find after tracking your inventory for a while that you are using more materials in certain products than you thought you were. Unless you are aware of this, you cannot ensure that your pricing completely covers your material costs.
Being completely aware of your material usage leads to pricing your products with confidence so that you achieve the profit margins you want.