Stock Management Guide: Key Principles and Mistakes to Avoid

Achieve effective stock management using key principles for optimal stock levels and efficient supply chain management. Master your inventory with data-driven insights.

Efficient stock management ensures businesses have the right amount of products available at the right time, minimizing excess inventory costs while preventing stock-outs that can lead to lost sales and customer churn.

This article explores the significance of stock management for businesses, its fundamental principles, the feasibility of using Excel for stock management, common mistakes to avoid, and practical strategies to improve your business’s stock management.

1 What is stock management?

Stock management is the systematic approach of planning, controlling, and organizing a business’s inventory or stock. The goal of stock management is to balance having sufficient supply to meet customer needs while minimizing holding costs and the risk of stock becoming obsolete. Effective stock management aims to optimize inventory levels to balance overstocking – which ties up working capital and incurs unnecessary storage costs and understocking – which leads to stock-outs and missed sales opportunities.

2 How stock management impacts your business

Stock management can significantly impact your business’s success and bottom line, no matter what industry you’re in.

  • Manufacturing
    Stock management is critical for ensuring a smooth production process in the manufacturing industry. Having the right amount of materials available at the right time at the right location is essential to meet production schedules and reduce lead times. Stock management can help reduce excess inventory, which can tie up valuable business capital and increase holding costs. Optimized stock levels can help manufacturers enhance cash flow, minimize production downtime, and improve productivity. Accurate stock management and inventory data enable manufacturers to identify demand trends and plan for future production requirements. DCL Supply, a commercial and industrial distributor, experienced a 50% drop in aged inventory by integrating a stock management system with its ERP. Their item classifications, inventory policies and parameters were set up. “What used to take us a full day using our manual process, now takes minutes and as a result, we have re-purposed a large part of an employee’s role into another area of the business,” says DCL Supply.
  • Retail
    For the retail industry, stock management directly impacts customer satisfaction and profitability. Having adequate stock ensures customers find the products they need, reducing the risk of stock-outs that often leads to lost sales and disappointed customers. On the other side, excess inventory ties up working capital and increases the chance of items becoming obsolete. Implementing efficient stock management practices helps retailers have enough items to meet customer demand and reduce excess inventory and operating costs. Real-time reporting and demand forecasting empower retailers to make data-driven decisions, enhance order fulfilment, and maintain a competitive edge in the market. Crazy Aaron is a manufacturer and distributor of Crazy Aaron’s Thinking Putty® and other creative, innovative products. stock management software integrated with their ERP, Fishbowl and their bill of material levels improved. “The stock system recognizes that you can’t look at every single item every day, so it focuses on the most important items. The dashboard gives you that high-level view of total stock holding, excess stock, stock-outs, and potential stock-outs. We can quickly see where the pain points are and what action we need to take,” says Crazy Aaron.
  • Wholesale
    Wholesale businesses rely on stock management to serve their customers effectively. Ensuring optimized inventory levels is essential for meeting the demands of retailers, suppliers, and other customers. Implementing stock management allows wholesalers to minimize holding costs, reduce lead times, and improve order accuracy. Wholesalers can respond to demand fluctuations and avoid stock-outs, which can have a further effect on downstream retail partners by keeping track of inventory levels in real time. Medshop is an Australian provider of medical supplies. After integrating stock management software with their ERP, Medshop’s sales increased, they experienced faster stock turns, and reduced excess inventory. “Within 6 months, there was a 14% increase in product availability and a 38% increase in sales with just a 16% increase in focused investment,” says Medshop. Businesses can enhance overall efficiency, customer satisfaction, and profitability by optimizing stock levels, reducing holding costs, and minimizing stock-outs. Embracing data-driven insights and employing advanced stock management tools can empower businesses in these sectors to achieve sustainable growth and success. Businesses can enhance overall efficiency, customer satisfaction, and profitability by optimizing stock levels, reducing holding costs, and minimizing stock-outs. Embracing data-driven insights and employing advanced stock management tools can empower businesses in these sectors to achieve sustainable growth and success.

3 Key principles of stock management

Businesses should adhere to the following key principles to achieve efficient stock management and maximize the benefits of their inventory.

Accurate and regular inventory management:
Accurate and regular stock management is an essential inventory tracking and monitoring principle. Implementing reliable inventory management software allows businesses to monitor inventory levels, sales, and stock movements in real time. This data forms the foundation for making informed and data-driven decisions, minimizing stock-outs, and reducing excess inventory.

Demand forecasting:
Accurate demand forecasting is essential for predicting future inventory needs and avoiding stock-outs or excess stock.

Classifying inventory:
ABC analysis helps categorize items based on their value and impact on the business. Classifying inventory into categories A, B, and C helps prioritize items according to their importance and profitability. Class A items, with high value and demand, require closer monitoring and more frequent reordering. Class C items, with lower value and demand, can be managed with less attention.

Stock rotation:
Stock rotation involves adopting the First-In, First-Out (FIFO) method to ensure that older stock is sold or used first, preventing product obsolescence and waste. Stock rotation is relevant for products with limited shelf life, such as perishables or items with expiration dates.

Safety stock:
Safety stock is a buffer quantity maintained to address unexpected fluctuations in demand, supply chain disruptions, or supplier delays. By having safety stock, businesses can prevent stock-outs during unforeseen events and maintain a smooth flow of operations.

Supplier management:
Cultivating strong supplier relationships ensures a reliable supply chain, timely deliveries, better negotiating power for favourable terms, and the ability to monitor supplier performance.

Inventory control vs. inventory management
Inventory management involves strategically planning and coordinating all inventory-related activities, such as

  • demand forecasting
  • policy setting
  • aligning inventory with business goals
  • It takes a long-term perspective, aiming to develop efficient inventory strategies

Inventory control involves focusing on the daily operational tasks of managing inventory, including:

  • stock replenishment
  • tracking, audits, and minimizing carrying costs
  • optimizing inventory levels and ensuring smooth operations.

While inventory management sets the direction, inventory control implements the tactics to achieve efficient stock management.

Visibility for continued improvement of key performance indicators
Stock management is not fluid and requires continuous review and improvement. Regularly analyzing inventory performance, identifying areas for enhancement, and adapting strategies to changing market conditions and business needs are crucial for success. Periodically monitoring and analyzing KPIs like stock holding and fill rate provides valuable insights for ongoing improvements and better decision-making.

The stock management system is crucial for managing our stocks and giving us a daily view of what’s important. It provides us with a focused dashboard while also being a great KPI reporting tool. – Aurora Lighting.

4 Can I use Excel for stock management?

While Excel can be a cost-effective and accessible tool for small businesses with relatively small inventory needs, it has limitations for comprehensive stock management. Excel lacks real-time updates, leading to data discrepancies and potential stock-outs. As your business grows, managing stock through Excel becomes increasingly difficult and prone to errors. To achieve optimal stock management, consider investing in a dedicated cloud-based inventory management solution that provides real-time monitoring, demand forecasting, automated processes, and reporting capabilities.

5 The top stock management mistakes to avoid

Businesses should avoid these common mistakes to prevent stock management pitfalls.

  • The need for more ordering quantities: Failing to maintain an optimal stock level can lead to financial losses and dissatisfied customers.
  • Ignoring seasonal demand: Neglecting to account for seasonal fluctuations in demand can result in stock-outs during peak periods or excess stock during off-seasons.
  • Manual data entry and poor management: Relying on accurate or updated data can lead to correct stock forecasts and effective decision-making.
  • Lack of automation and absence of demand forecasting: Manual stock management processes can be time-consuming and error-prone, hindering overall efficiency. Excel cannot provide sophisticated demand forecasting, which is essential for accurately planning future inventory needs.
  • Inadequate communication: Miscommunication between different departments can lead to overstocking or understocking specific products.

Keir Surgical, a distributor of surgical supplies, says, “Supplier lead times were always a guess and based on a supplier’s full line as opposed to individual items. It took tedious amounts of time to work out our orders each month, and I would need to go back and check every row to make sure that the calculated number made sense based on the three or 6-months sales trend.” – Keir Surgical

6 How to improve your business’s stock management

Implementing various stock planning strategies and investing in the right technology that provides automated and predictive insights to balance your stock will enhance stock management in your business. Stock management systems like Netstock can help change your stock management processes. With real-time data tracking, demand forecasting, and automation capabilities, businesses can optimize inventory levels, reduce holding costs, and avoid stock-outs, ensuring seamless operations and customer satisfaction. By embracing data-driven insights and leveraging sophisticated tools, businesses gain an advantage in today’s business landscape.

Invest in technology that helps you predict and plan.
With the release of the Predictive Planning Suite, powered by AI, Netstock has also launched the Opportunity Engine™, a powerful new AI-powered tool. The Opportunity Engine is the ultimate digital assistant, designed to analyze all inventory data to quickly anticipate potential problems and provide recommendations in real time, enabling customers to respond and rectify issues long before they become a problem.

Continuous review and adaptation are essential for sustained improvement in stock management.

What leads to optimal stock management?

  • Regularly assessing stock management processes
  • Identifying areas for enhancement, for example identifying slow-moving or obsolete stock
  • Adapting strategies to changing market conditions and business needs

It’s also critical to foster strong relationships with customers and suppliers. Open communication helps maintain a reliable supply chain with timely deliveries that meet demand, ultimately unlocking operating cash in your business.

Training staff in stock management best practices and keeping them informed about their significance within the business will ensure a cohesive approach and encourage proactive involvement in inventory management.

This guest post is kindly supplied by Netstock, who you can meet at itSHOWCASE events around the UK

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