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Source: Small Business
Management
Effective tock control system is necessary if the retailer is to offer customers a balanced
assortment. A system need not be elaborate. It should enable the retailer to determine
what needs to be ordered on the basis of: (1) what is on hand, (2) what is on order, and
(3) what has been sold.
The kind and amount of paperwork necessary for effective stock control depends largely
on the type of merchandise. This Guide emphasizes unit control. Unit control provides
information about; breadth of assortment, depth of assortment, number of brands stocked,
and quality of line stocked.
Maintaining effective
stock control is important in all kinds and sizes of retail
operations, but it can be critical in a small one. At best, the owner-manager of a small
retail store flirts with loss when stock becomes unbalanced.
The type of merchandise you handle will largely determine the kind and amount of
paperwork needed for effective stock control. For example, control of perishables - such
as in a delicatassen - requires no paperwork. Stocks are controlled visually. Many
deliveries - such as milk and bread - are daily, and others are frequent. In addition, the
supplier's routepeople have a self-interest in helping keep stocks fresh.
But even so, the owner-manager may need some sort of reminder - perhaps a note on the
calendar - to make periodic checks. The important thing is to watch for changing customer
demands requiring changes in your purchases.
The situation is different, though, with parts inventory in a service operation and
with sizes and styles in an apparel store. For example, the owner-manager of a shop that
specializes in motor tune-up may keep track of the parts used every day with little effort.
But what about those used only once a month? Some sort of record is necessary if the right
parts are to be on hand when needed.
In shoes, ladies ready-to-wear, and other soft goods stores style, color, and sizes
complicate the problem of stock control. A great deal of paperwork may be necessary in
order to serve customers properly and to prevent over or underbuying.
The Basic Picture
The owner-manager of almost any store can sketch the basic picture of stock control. It
involves four facts: (1) what you have on hand, (2) what you have on order, (3) what you
have sold, and (4) what you need to order.
But whether or not these facts are used to achieve effective control is another story.
A memory lapse on any of them can mean being out of stock or overstocked on an item, a
style, a color, or a size.
What Kind of Records?
Stock control records help prevent memory lapses. They estimate the need for carrying
details - especially on style, colors and sizes - in one's head, a trying task. They
provide a container into which the owner-manager can deposit details.
The kinds and number of control records which an owner-manager uses depend on the
amount of details that are needed. Stock control systems may be achieved either by
counting stock or by counting sales. Either way, a model stock list is required.
The Model Stock List
A model stock list is the first step in setting up a replenishment system for
merchandise that involves styles, colors and sizes. You prepare a list of all the items
you want to control.
The list should include "model stock" quantities. These quantities are the
amounts needed in order to maintain an "in stock" position for a certain period
- usually a number of weeks.
You can use a simple formula to determine the period of time to be covered by the model
quantity. It is: Reorder Period + Delivery Period = Number of weeks.
Suppose that you order shirts every 6 weeks and delivery from the vendor takes 2 weeks,
your number of weeks to be covered would be 8 (reorder period of 6 weeks + delivery period
of 2 weeks = 8 weeks). Suppose further that you sell an average of 10 shirts a week. In
this example, you would need 80 (10 x 8 weeks) to maintain the stock of shirts.
When size is a factor, as in shirts, the necessary size run should be noted on the
model stock list. You know from experience which sizes of an item are best sellers, which
are medium sellers, and which are low sellers. Best selling colors can also be noted.
Some model stock lists - women's clothing, for example, - include a special section.
This section is called maintained selection items. Its purpose is to flag items that
change with the fashion.
The term, "maintained selection items," implies groups of items which can be
substituted for each other. Girls' blouses provide an example. When they reach the reorder
point, you may need to order a new style to replace the old style. Examples of the
selection item groups are infants' wear, and children's wearing apparel.
Merchandise of the selection type should be listed on the reorder records in groups by
classification, item, and price. Such a listing will insure stocking a given price line at
all times with proper merchandise. At the same time, it provides a record of the sales
activity on the individual style.
Counting Stocks or Sales?
Counting is the basis for getting the information necessary for effective control. You
can count stock on a periodic basis or you can count it daily by counting sales.
Which is best for your situation depends on the kind of merchandise you carry and the
amount of work involved for you and your salespeople. Your goal should be to use a method
which will provide up-to-date information at the most economical cost.
If You Count Stock
Your situation may lend itself to counting the stock on a periodic basis. If so, you
would use what is called "the rotated method" and record the information on
cards.
In the rotated method of stock control, you use rotated unit control cards. The format
varies according to the kind of merchandise, but the kind of information is the same. With
such a card, you keep track of an item, such as shoes by listing: (1) what is on hand, (2)
what is ordered, (3) what has been received, and (4) what has been sold. Once every 2
weeks, the stock is counted to determine how well an item is selling.
If sales are dragging, you may decide to close out the item. If sales are normal, you
would order fill-ins. On the other hand, the stock count and other information on the card
may reveal that sales are greater than activity on the sales floor has indicated. If so,
your decision may be to increase the filling order and plan to promote the item.
The principle behind the rotated method is: Old Inventory + Purchases - New Inventory =
Sales. In this formula, you can substitute the word "disappearance" for the word
"sales". Disappearance represents shoplifting, inaccuracies in counting
inventory, and sales.
If You Count Sales
The other method for controlling stock is the perpetual method. In it, stocks are
calculated from the store's recorded sales.
If you use this method, you have to keep track of sales when they are made, on an item
basis. Its usefulness depends on whether the device you use captures the information with
a minimum of effort and chance for error. The owner-manager with a fairly large sales
volume should check the possibility of using a computer service center to count sales and
create up-to-date stock records. Such data processing may be more economical than
maintaining the records manually.
Even when electronic data processing is not used, cash register tape may be such a
device for capturing the needed information. If a sales count is needed on only a few
items, you could check the possibility of using your register to get the information. For
example, "Key A" might stand for one item number, "B" for another, and
so on.
Sales slips provide another device for recording the item sales. Still another is the
price ticket which can be detached when the item is sold.
Whether the information comes from register tape, sales slips, or price tickets, it has
to be related to your stocks, specifically to particular classes of merchandise. A drug
store, for example, needs sales information on prescriptions, proprietaries, fountain,
sundries, tobacco, confections, magazines, and toiletries. The best way is to summarize
the information and post it daily to your stock records.
These up-to-date stock records provide the information you need for ordering fill-ins.
You review them on a periodic basis - once every 2 weeks, for example - and reorder as
needed. One disadvantage is that errors can creep into the posting of the daily sales.
However, adjustments can be made through a physical count of stocks every so often.
If you have only one or two items that need unit control, you might want to work with
price tickets. At the time of the sale, detach the ticket and file it for later posting on
your record. The balance on hand after the posting will determine what you need to
reorder.
The principle behind the perpetual method is: Old Inventory + Purchases - Sales = New
Inventory.
Preventing Excess Stocks
In a small store, preventing excess stock serves two purposes. One is the maintenance
of a balanced assortment which allows the store to serve customers. The other is the
assurance that an excessive amount of working capital is not tied up in merchandise.
Open-to-buy is the key to keeping stocks in line. Open-to-buy is the amount of
merchandise (in units or dollars) that you need to receive into stock during a certain
period.
The period may be the selling season that is customary for a certain line of
merchandise. Or it may be a time-span that is set by the owner-manager to fit his or her
particular situation.
At the start of the period, a merchandise classification - such as blouses - is open to
receive the number of blouses that is necessary to achieve the sales you expect to have in
that period. Suppose, for example, that you expect to sell 200 blouses. To start the
season, you buy and receive 160 blouses. Thus you are open to buy an additional 40
blouses.
The 40 is your control figure when your order fill-in stock. As long as you buy no more
that 40 during the season, your investment in inventory for blouses will be no greater
that you had planned.
But what happens if customers make a run on the blouses? If sales activity is
tremendous early in the season and you can get a new stock within the next several weeks,
the question is a merchandising one. How hot is the hot item? Repeat if halfway? Or is it
a freak situation that will have cooled off before new stocks can be received and
promoted?
After you have decided how heavily to restock the item, you set a new open-to-buy
figure. Living within it keeps your inventory investment within your plans and prevents an
excessive stock which might have to be marked down at the end of the season.
A side benefit from stock control records is that they are helpful in delegating work.
They provide concrete tools which you can use in training an employee to care about
details, such as counting stock.
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