For any food and beverage manufacturer, waste is an unavoidable reality that consumes valuable business resources, and impacts margins, profitability and cash flow, making effective stocktaking paramount for business success.
Done correctly, stocktaking identifies inventory discrepancies, improves profitability, supports better informed business decision-making, and enables clearer control over margins, waste, quality and compliance.
Although effective stocktaking can positively impact almost every aspect of business operations, the foremost priorities in a stocktake are to evaluate financial accuracy, enhance operational efficiency, reduce fraud risk, and improve decision-making.
Businesses who fail to invest the resources required to sufficiently stocktake risk losing the reins over these four key priorities.
Stocktaking as it stands – state of play
As businesses increasingly understand the value in keeping these four key factors in check through a streamlined stocktaking process, stocktake implementation has transformed significantly in recent years, moving from a periodic process to a perpetual process aided by technology.
With a periodic stocktake, businesses conduct intermittent checks of stock quantities as infrequently as annually. While this approach may satisfy minimum audit requirements, sparse stocktaking comes with the risk that an issue can long exist undetected within an organisation’s operations.
For this reason, perpetual systems and stocktaking have become the preferred method of choice for most manufacturers as stock levels are updated in real time as items are bought, sold or moved.
Perpetual stocktaking can be as simple as a two-person job, with a counter and co-counter segregating and counting as few as 20 items a day, so to avoid shutting down entire warehouses in the process.
These results, in conjunction with a year-end count, reveal whether an organisation’s controls are working in real-time and are helping to alleviate issues throughout the year, rather than uncovering an unwelcome surprise come balance date.
Stocktaking for food and drink manufacturers
Effective stocktaking is especially important to reduce risks for businesses in the food and drink industry, given the volatility of raw material prices and supply chains in a tumultuous economy, and the fact that much of the inventory is often perishable.
More so than in other industries, food and beverage businesses need a meticulous understanding of when stock is due, when it must be used by, and how long it can be held for – not just from a profitability perspective, but from a product quality and consumer safety standpoint too.
If expired or short-dated stock is found, businesses should look deeper to assess if this is indicative of a broader issue with supply chain reliability or system procedure.
In turn, these can reveal issues within bulk storage environments such as silos, tanks and cool rooms, which are often prone to being organised in a way that makes tracking stock difficult, regularly resulting in production losses, evaporation and shrinkage.
With many Australian manufacturers operating across numerous warehouses, comprehensive and consistent stocktaking is essential to ensure all data flows into one central area to reveal the broader picture of the business.
Getting started: The first step to effective stocktaking
It can be overwhelming to know how to bring your stocktaking processes up to scratch, so the best first step is often to simply take a step back to map out the basics of each process:
- What type of stock cycle is being used – is it a perpetual or periodic system?
- What counting methodology will be used?
- Are there practical procedural guidelines and rules ensuring every employee is going to behave consistently?
The best approach comes down to setting basic instructions across the board. While it may seem obvious, a set of clear instructions for every stocktaking process ensures that come audit time, management isn’t met by a nasty surprise that their teams aren’t operating in the way that they had expected.
From here, sit down to map out how your new processes will be communicated, considering:
- Best fit frequency;
- How roles and responsibilities for counters and supervisors are defined;
- How duties are segregated;
- How assessments of stock movement will be made during the stocktake;
- How to best declutter, label and quarantine as required to prepare the area for a seamless stocktake.
Effective stocktaking is far more than a compliance exercise. For food and beverage manufacturers, it is a powerful management tool that provides visibility over inventory, highlights operational inefficiencies, and reduces waste.
Organisations that invest in robust stocktaking processes with more structure and discipline established from the outset in turn get more accurate information generated, providing better outcomes and decision-making capabilities for your business.
Shelby Earl is a Partner in RSM Australia's Audit and Assurance division, based in Ballarat and working with clients across Ballarat, Albury, Gosford and Wagga Wagga.
