～Learn the common stocktaking pitfalls that can affect gross profit calculations, inventory loss analysis, and SKU-level product management for retailers in Singapore.～
Common Pitfalls in Stocktaking
Stocktaking plays an important role in retail operations. Its main purposes are financial closing and profit determination, as well as product management and inventory loss control. However, even when a physical inventory count is carried out accurately, the results may not be reliable if the underlying data or daily store operations are not properly managed.
For retailers in Singapore, accurate stocktaking is essential for improving inventory accuracy, reducing stock loss, and supporting more efficient store operations. Stocktaking should not be viewed simply as the task of counting products. It is a key process that supports financial reporting, inventory management, and better decision-making in retail businesses.
1. Pitfalls in Financial Closing and Profit Determination
After completing a stocktake, a company may find an abnormal value in its overall gross profit margin. In such cases, the first step is usually to recheck the stocktaking results. However, the cause of the discrepancy is not always the physical stocktake itself.
When using the retail inventory method, profit determination requires more than just beginning and ending physical inventory counts. Companies also need accurate data on purchase cost, purchase quantity, sales, and returns during the accounting period. The main figures required are total beginning inventory cost, total purchase cost during the period, total sales, and total ending inventory at retail price.
If the beginning and ending stocktaking results are correct, abnormal figures may be caused by problems hidden in sales or purchasing data. One common issue is a cut-off error around the stocktaking date. For example, if goods arrive before the stocktake but the delivery slip or system data is dated after the stocktake, purchase data will appear lower than the actual amount. As a result, the gross profit margin may appear higher than it should be.
To prevent this, retailers should consider restricting deliveries and returns for a certain period before and after the stocktaking date. Some products may need to be delivered daily, but for other items, clear rules should be communicated and followed by all relevant staff. Retailers should also pay close attention to missing or incorrect processing of product transfers between departments or stores.
2. Pitfalls in Product Management and Inventory Loss
In inventory management, it is important to manage stock not only by product category but also at a more detailed SKU level. Shrinkage is often expressed as a monetary amount, but at its core, it is a quantity issue.
On a quantity basis, inventory can be understood as follows:
Beginning inventory quantity + Purchase quantity – Return quantity – Sales quantity – Lost quantity = Ending physical inventory quantity
In other words:
Inventory loss quantity = Expected ending inventory quantity – Actual ending inventory quantity
Cut-off errors can also affect product management and inventory loss calculation. Errors in purchase quantity may be caused by shipping mistakes, receiving errors, or incorrect delivery data. For returns, there may be cases where products were returned but the transaction was not properly recorded.
Sales quantity may also contain SKU-level errors. A product item and an SKU are not always the same. For example, food products may have variations such as “mild,” “medium spicy,” and “hot.” Apparel and footwear may have different sizes such as “S,” “M,” and “L,” or different colours such as “red,” “blue,” and “green.”
Because these items may have the same selling price and purchase cost, mistakes during receiving or sales registration may not appear to affect the total monetary amount. However, from an inventory management perspective, SKU-level errors can create serious issues. They may lead to stockouts of specific variations or excess inventory of others.
Markdowns, markups, and disposal processing are also important. If markdowns are not properly recorded, the difference may be treated as unknown inventory loss. On the other hand, markups may make inventory loss appear lower, resulting in what is known as “Inventory overage.” If disposal or markdown processing is not handled correctly, overage may increase.
In retail formats such as supermarkets, where prices frequently change due to flyers, monthly promotions, or special campaigns, manual management can be difficult. In such cases, retailers may need to use system-based theoretical inventory or other operational controls. The key point is that many stocktaking issues occur before the actual stocktake begins. No matter how accurate the physical inventory count is, its value decreases if the data and operations behind it are not properly managed.
For more information about our stocktaking services, please refer to the page below.
👉 Stocktaking Service – AJIS Singapore
Read previous article: Column1 Why Is Stocktaking Necessary for Retailers?
Read previous article: Column2 How Stocktaking Improves Inventory Accuracy
Editor: AJIS Group
AJIS Group is a global corporate group led by AJIS Co., Ltd., which has been a leading provider of stocktaking services and retail support services in Japan. The Group operates in the United States, China, Hong Kong, Taiwan, South Korea, Singapore, Malaysia, Thailand, Vietnam, and the Philippines.
With a proven track record of working with more than 3,000 companies and supporting a cumulative total of over one million stores annually, AJIS Group helps address a wide range of challenges faced by the retail and distribution industries. Its services include stocktaking, store operations support, sales floor improvement, and promotional support.
By providing practical services tailored to the market characteristics of each country and region, AJIS Group contributes to improving store operational efficiency and enhancing the value of sales floors.
