On this page
- Stock levels and sales volume of stock items
- Stock control policy
- Areas of your business that impact stock management
- Calculate stock turn rate to help you plan
Have the right level of stock to satisfy customer needs, and identify excess or old stock. Don’t run your stocks too low, but remember that if you have too much stock, it can cost you money. The estimated cost of holding stock is ten to thirty percent of the stock's value. This cost includes the storage, insurance, keeping accurate tracking records, and controlling stock to avoid theft.
Review current stock levels
To review stock levels and stock sales volume:
- determine current stock levels and the value of the stock. Use accounting or stock control software to track individual stock items
- look at sales records to find out which items are good sellers and which are slow moving – don’t forget to look at seasonal trends
- work out which items of stock sold make the most gross margin. This way you will be able to focus more energy on these sales for improved profit. Gross margin is the percentage of total sales revenue you make after taking away the direct costs of producing your goods
- make a list of slow moving, old and excess stock items and develop an action plan to move this stock immediately, even if it is discounted below the cost of the item or donated to charity. You can use the money made to buy new stock that sells. If you donate the stock, don't forget to advertise that you have made a donation
- update your stock records and ensure your Financial Policies and Procedures Manual includes a policy to track all movement of stock. This will help with reordering stock only when needed and also highlight any theft or fraud that may occur.
Establish a stock control policy
When implementing a stock control policy:
- identify stock you always need and ensure you have sufficient supply
- tighten the process of buying stock. Knowing the volume sales per stock item will help you buy the right amount
- keep accurate stock records. Match these records to a regular physical count – at least once a year. If there's a big difference between the records and physical count, do the count more often - and until you have worked out what's causing the difference
- negotiate deals with suppliers. Avoid volume discounts unless you're actually selling large volumes of the item. Try to negotiate discounts for quick settlement (unless your cash position is poor) or negotiate for smaller and more frequent deliveries from your suppliers to smooth out your cash flow
- don’t let discount prices drive your stock buying decisions. Buy stock you can sell at a profit in a reasonable time frame.
Identify other areas of the business that can impact stock management
When reviewing your business with stock management in mind, consider:
- ordering less stock more frequently and arranging better delivery schedules. This will reduce stock quantities, save money and improve liquidity without reducing sales
- the impact of marketing and promotion. Make sure you have enough stock or can get the stock before launching a promotion. If you have taken on more stock than usual, make sure you have a back-up plan if they don't sell
- reviewing your sales policies. A policy could be directed towards a higher turnover of goods, selling goods bought at bargain prices faster and clearing slow moving items
- delivery to customers. Delivering stock to customers means stock is moved quickly and the cash for the sale will come in quicker.
Use stock turn rate to help you plan
The 'stock turn rate' is a calculation you can use to check if your stock planning is effective.A low stock turn rate means you're moving stock too slowly, which creates excess or old ('aged') stock, as well as higher holding costs. A high stock turn rate could mean you don't have enough stock on hand to supply customer needs.
To calculate the stock turn rate:
- determine your cost of goods sold
- determine the cost of stock on hand
- divide cost of goods sold by cost of stock on hand (cost of goods sold/cost of stock on hand) to reach your stock turn rate.
Case Study: Advice on stock control for your business
'Make sure you employ staff who share your stock management philosophy and the housekeeping rules that need to be followed – their adherence to your approach will be crucial.'
James Wall, Gardenworld Nursery