Sample Stocktaking

With sample stocktaking, only a small part of the inventory is counted on the basis of samples, rather than the entire inventory. Depending on the size and nature of the warehouse, the counting effort can be reduced by an average of 95%.

Explanations on sample stocktaking

Sample stocktaking represents a significant simplification of the time-consuming and costly full inventory. Using legally recognized mathematical-statistical methods, the inventory quality, i.e. the information quality of the inventory data in the inventory management system (merchandise management system, ERP system or warehouse management system), is measured and a statement is made about its reliability. The statistical methods can additionally be used for inventory checks during the year. Sample stocktaking may not be used for perishable goods or particularly high-value products, among other things.

The inventory obligation

The inventory is prescribed according to HGB, in order to take up the current assets. If this is done as a full count, considerable costs and personnel expenditure are necessary - often also warehouse closing times. In addition, there are numerous sources of error in the recording, which can lead to apparent differences and severely jeopardize the quality of inventory security. Against this background, various inventory simplifications have been permitted by law, of which sample stocktaking is probably the most efficient.The sample stocktaking has been legal since January 1, 1977 according to HGB §241 para. 1: "When drawing up the inventory, the stock of assets may also be determined by means of recognized mathematical-statistical methods on the basis of samples. The method must comply with the principles of proper accounting. The informative value of the inventory drawn up in this way must be equivalent to the informative value of an inventory drawn up on the basis of a physical inventory."

Tasks

These are essentially measurement procedures: The correctness of inventory management, i.e. the correspondence between the inventories kept by the system and the items actually in the warehouse, is checked and verified. If this is confirmed within the permissible limits, the full inventory is not required. The inventory is transferred from the systems at the end of the year and valued (acceptance method). No value adjustment is made on the basis of extrapolation; only quantity differences found at the individual samples are corrected on the stock item. 

Requirements

To carry out sample stocktaking, companies need an ERP or WWA. The inventory quality must be at a good level: inventory accounting that is reliable in terms of stock is the basis.  The Institute of Public Auditors in Germany (IDW, 1981, p. 61) lists the following:

  • Completeness
  • Accuracy
  • Verifiability
  • Individual recording of inventories and inventory-reliable inventory accounting
  • Physical recording of inventories

Benefits

In contrast to full stocktaking, sample stocktaking has a number of advantages, because counting many items by a large number of people inevitably leads to errors. Often, employees who are hardly familiar with the warehouse situation are also called in for the full inventory. In addition, there is often time pressure, which also allows the checking of differential quantities only in the case of high-quality deviations. 

Sample stocktaking... 

  • reduces the counting effort by up to 95%,
  • significantly reduces costs, error rates and personnel requirements,
  • takes the time pressure and stress off employees and management,
  • enables simplified planning and organization of the inventory,
  • increases process reliability after the inventory,
  • avoids warehouse closures and production stops.

In addition, inventory sampling systems can also be used for inventory checks during the year. In this case, it is not the external inventory regulations that apply, but the company's own internal issues. By taking additional samples in different inventory areas and material groups, the inventory quality can be continuously monitored with manageable effort.

In which countries is sample stocktaking used?

Sample stocktaking was first introduced by law in Germany as a replacement for the full inventory. In 1981, the main technical committee of the IdW (Institute of Public Auditors in Germany) issued a detailed statement on the implementation of this form of inventory. This statement was written in English and German, it is still authoritative today and probably the only English-language set of rules on sample stocktaking. In Austria, sample stocktaking is also permitted by law, and Switzerland also accepts it. Inventory sampling systems are also carried out in some countries within and outside Europe that do not have a specific legal basis for sample stocktaking. In this case, the auditors must be consulted on a case-by-case basis.

In which sectors and industries is sample stocktaking used?

Industry

Originally, the procedure was used in large industrial companies such as Siemens AG. These already had their first IT-supported warehouses in the late 1970s and thus fulfilled a necessary condition for sample stocktaking. Since then, IT-supported warehouse management has long since become standard. The corresponding programs have matured and the processes are becoming more and more precise. Therefore, every warehouse managed in line with the times in the industrial and production sector is suitable for replacing the full inventory with statistical procedures.

Trade

Retailers use sampling methods, especially in the warehouse area. Especially in the wholesale and shipping area, where fast response times are important, these procedures are used to achieve considerable relief. However, sampling methods are also successfully used on the sales floor. Suitability then depends on the availability of inventory data.

Logistics services

For some years now, logistics service providers have been switching from full inventory to sampling methods. The acceptance of their customers has increased very much, which allows the effort to be reduced considerably.

Utilities

Utilities usually have a very large number of spare parts that need to be managed and inventoried. Unlike industrial and commercial companies, the turnover rate is often lower, but the criticality of individual parts is very high. In this respect, inventory errors must be avoided as far as possible. In addition, the monitoring of spare parts stocks during the year plays a special role here.

Inventory facilitation with statistical methods

Since the end of the 1970s, it has been permissible to carry out an inventory by sampling as a substitute for a full inventory (Section 241 (1) HGB). Which mathematical procedures are permissible for this and how these are to be applied were defined from the beginning of the 1980s by the Institute of Auditors (IdW) and the Working Group for Economic Administration (AWV).

The rules for implementation and auditing were also defined in detail. For this purpose, certain operational requirements had to be met, which many companies were not yet able to fulfill at the time. This related in particular to IT-supported, reliable inventory management. Since around the mid-1990s, the situation in this area has improved significantly, and warehouses managed in line with the latest standards generally meet the required conditions. Auditors also expect a certified system for carrying out sample stocktaking. 

Recognized mathematical-statistical procedures

The applicable procedures within the meaning of the HGB were defined by the IdW in 1981. In principle, four extrapolation methods and the sequential test are recognized by the IdW as permissible inventory sampling methods. They are suitable for different warehouse situations. In conventional storage areas, the high-calculation methods are generally used. They require moderate inventory security, the counting effort comprises about 5% of the warehouse items. For this purpose, the counting results are evaluated according to all four permissible extrapolation methods (mean value, difference, ratio and regression estimation).

The method with the most accurate result is used for inventory documentation. Here, regression estimation regularly proves to be the most mathematically demanding, but at the same time most accurate method. The sequential test is a special procedure for particularly secure storage areas. It requires the least amount of counting - ideally only 30 samples. If the counted quantities deviate from the target quantities of the random samples, further random samples must be taken, which can lead to greater effort than with the high-calculation methods in the case of uncertain stocks.

The sequential test is particularly suitable for warehouses with a high degree of correctness. The inventory methods can be combined with each other as well as carried out as a permanent variant throughout the year, and the statistical methods can additionally be used for stock checks during the year. For this purpose, companies must fulfill similar conditions as for the permanent inventory.

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