1. Topic 3 : Effective Stocktaking Skills
ACC 405
Topic 3 : Effective Stocktaking Skills
Topic 3 Notes

2. Topic 3 : Lecture Notes
Learning Objectives
After the completion of this Topic, students should be able to:
Interpret the importance of effective stock taking.
Apply the techniques for an effective stock take
Identify the difficulties for a stock take.
Apply effective procedures to manage difficulties for a stock take.
Calculate the cost of ending inventory.

3. Stock Taking – Why are inventories important?
Topic 3 : Lecture Notes
Stock Taking – Why are inventories important?
We frequently encounter clients who only check their stock inventory once a year. In the retail market where stock turnover is high lack of stock take information will often mean the operator of the business is unaware of their true financial position. Here are four reasons why you should take regular stock takes:

4. Topic 2 Lecture Notes
Why stock take?
It will indicate how much of your cash is tied up in stock and let you assess if you can reduce stock levels to get more cash in your business
It will assist you in ordering fresh and replacement stock more accurately

5. Topic 3 : Lecture Notes
Cont…
It will minimise wastage of stock lines going past their use by date or being damaged by poor storage
It will supply you with a key financial figure necessary to calculate your gross margin and your business's performance.

6. The Difficulties For a Stock Take
Topic 2 Lecture Notes
4/15/2018
The Difficulties For a Stock Take
Too much of some products.
This excess inventory and dead stock leads to decreased turnover and profitability.
Stock outs of other products.
This results in backorders, lost sales, and dissatisfied customers.

7. Cont… What is in stock. Can’t find material in their warehouse.
Topic 2 Lecture Notes
4/15/2018
Cont…
What is in stock.
The on-hand quantity in their computer system does not agree with what is actually on the shelf in their warehouse.
Can’t find material in their warehouse.
They know the material is “out there somewhere” but they don’t know exactly where it is located.

8. The Goal of Effective Inventory Management
Topic 3 : Lecture Notes
The Goal of Effective Inventory Management
“Effective Inventory Management enables a company to meet or exceed customers’ expectations of product availability with the amount of each item that will maximize net profits or minimize your inventory investment.”

9. Difference Between Inventory Control And Inventory Management?
Topic 2 Lecture Notes
4/15/2018
Difference Between Inventory Control And Inventory Management?
Inventory control is managing the inventory that is already in your warehouse, stockroom, or store. That is:
Knowing what products are “out there” and how much you have of each item
Knowing exactly where each piece of each product is located in your warehouse
Ensuring that all inventory remains in salable or usable condition
Storing products to minimize the cost of filling customer orders

10. Topic 2 Lecture Notes
4/15/2018
Cont…
On the other hand inventory management is determining when to order products, how much to order, and the most effective source of supply for each item in each warehouse. That is, ensuring that you have the right quantity of the right item in the right location at the right time. Inventory management includes all of the activities of forecasting and replenishment.

11. The First Step to Achieve Effective Inventory Management
Topic 2 Lecture Notes
4/15/2018
The First Step to Achieve Effective Inventory Management
Understanding everyone’s role in achieving effective inventory management.
Stocking the products your customers expect you to have available for immediate delivery.
Using different rankings for different purposes.
Developing accurate forecasts of future demand of products.
Making intelligent decisions for stocking new items.

12. The Inventory Triangle of Cooperation
Replenishment
Sales Warehouse
Good information is usually less expensive than additional inventor.

13. What is Sales or User’s Role In Effective Inventory Management
Determine what products should be stocked in each branch or warehouse
Help develop the forecast of future sales/usage of each finished good product
Decide what new products should be introduced to the customer base
Help keep inventory records accurate

14. What is Replenishment Role In Effective Inventory Management
Making sure that inventory is available in each store/warehouse/branch to meet the sales or usage forecast
To minimize the “total cost” of inventory and maximize the firm’s net profits or minimize total cost
◦Determining the most economic purchase quantities
◦Deciding the best source of supply for each product

15. What is Warehouse’s Role In Effective Inventory Management
Store products to minimize the cost of filling orders
Maintain accurate on hand quantities
Protect inventory from breakage, spoilage and theft

16. What Do Your Customers Expect You to Have In Stock
Stocking a product is a commitment to have that product available in reasonable quantities
Your warehouse is probably filled with:
◦Stock (Merchandise you intend to stock)
◦Stuff (Material that inadvertently got stuck in your warehouse)

17. Stock Based on “Hits” or Month With Usage Activity
A Hit is a request of a product regardless of the actual quantity requested.
The more often a product is requested, the more reason you have to stock the product

18. Which Product Would You Take ?
Part
Annual Order/Hit
Total Annual Order/Hit
Annual Sales ($)
A100 2
5 000
7 500
B200 6
700
850
C300 50
124
524

19. Cont…
Part #A100 had the largest total annual quantity ordered and cost of goods sold, but was ordered only two times in the past 12 months. Should this item be stocked? Maintaining a large quantity of a product that is only sold two times a year will negatively affect inventory turnover. Perhaps we could special order this product when it was ordered by a customer.

20. Cont…
While Part#C300 had the lowest total quantity ordered and annual cost of goods sold, it was ordered by customers 50 times in the past year (just about once a week). Doesn’t it make sense to stock this item? Remember that the first part of the goal of effective inventory management is to “meet or exceed customers’ expectations of product availability.” Apparently customers continually expect part #C300 to be available.

21. How to Manage Inventory Control
Establishment of responsibility: every inventory counter is accountable by different person.
Segregation of duties: a person who records the inventories is not the same as the person who makes a count and also not the same with the person who distributes the inventories.

22. Cont
Independent Internal Verification: make a second count and verify the balance by a different person.
Documentation Procedure: numbering tag or barcode is paste to the inventory and each sales is made using on-line basis.
Physical, mechanical and electronic control: make a physical stock count frequently.

23. Scope and Importance New effective tools and techniques evolved for
efficient management of inventories.
Private and Public undertaking sectors can make savings in inventories by effecting internal and external economies.
Savings can be achieved in Material purchase by competitive bidding, value analysis Economic ordering Reducing deterioration Obsolescence in storage i.e. reducing working capital blocked up

24. Inventory Problem
Inventory problem is one of balancing various costs so that total cost should be minimized. These costs are :- Cost of ordering - Cost of carrying - Quotation or tendering Warehousing or storage Requisitioning Handling Order Placing Clerical and staff Transportation Insurance Receiving inspecting & Storing Interest Quality control Deterioration, wastage Clerical and staff Taxes

25. The End