Stock taking definition
/What is Stock Taking?
Stock taking is the counting of on-hand inventory. This means identifying every item on hand, counting it and summarizing these quantities by item. There may also be a verification step, where the count results are compared to the inventory unit counts in a company's computer system. Stock taking is a common requirement of a periodic inventory system, and may also be required as part of a company's annual audit. In short, stock taking results in a summary-level document that contains a list of the quantities on hand for every inventory item as of a specific point in time. The procedural steps required to do so are noted below. This is a highly labor-intensive process and may require a significant amount of down-time within the warehouse, so companies generally try to avoid stock taking to the greatest extent possible.
Step 1. Train Teams
Select and train the counting teams in regard to how to conduct counts and fill out the associated paperwork.
Step 2. Set Cutoff Time
Establish a cutoff time, after which no further inventory in the receiving area is allowed in the warehouse, and no items are shipped out. It is helpful if there is no production, receiving, or shipping activity on the day of the count.
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Step 3. Assign Responsibility
Assign counting responsibility areas in the warehouse to each count team.
Step 4. Issue Count Tags
Distribute a prenumbered sequence of count tags to each team, and log in the number ranges distributed.
Step 5. Count Inventory
In each count team, one person identifies and counts inventory while another person fills out the count tag. The original tag is taped to the inventory, and the team retains a backup copy.
Step 6. Verify Count Tags
When each team is done counting, they turn in the count tags. The count tag administrator checks to see if any tags are missing, which may require an additional search to find the tags. They are usually still attached to the tags that were taped to the inventory.
Step 7. Enter Count Information
The count tag clerk summarizes the count tags into a spreadsheet, which is used to create summary totals for each inventory item. An alternative is to enter the information into a database, which does a better job of aggregating summary totals.
Step 8. Verify Counts
The cost accountant compares the resulting information to the unit balances maintained in the company's perpetual inventory system (assuming that it has one). If there are large variances from the existing database, a count team goes back to the warehouse to verify the original counts.
Step 9. Investigate Discrepancies
If you uncover a significant difference between the book and counted balance for an inventory item, then investigate it. These discrepancies can indicate that there is a significant underlying issue, such as a process failure, poor employee training, or inventory theft. Consequently, conduct a detailed investigation to determine the cause of each discrepancy, and take remedial action to reduce the risk that the issue will occur again.
Cycle Counting
A more frequent form of stock taking is called cycle counting, which is completed every day. If a company uses cycle counting, the warehouse staff counts the inventory in a small portion of the warehouse and matches its count information against the records in the computer system. If there are errors, the warehouse staff corrects them, and also investigates the underlying reasons why the errors occurred. An active cycle counting program will at least improve the accuracy level of the inventory records, and may even make it unnecessary to conduct a month-end physical inventory count.