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 up to 99%.

    Definition: What is a sample stocktaking?

    The sample stocktaking represents a significant simplification of the time-consuming and costly full stocktaking. With the help of 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 also be used for stocktaking checks during the year. Sample stocktaking may not be used for perishable goods or particularly high-value products, among other things.

    The stocktaking obligation

    According to the German Commercial Code (HGB), stocktaking is required in order to record current assets. If this is done as a full count, considerable costs and personnel expenses are necessary – often including warehouse closure times. In addition, there are numerous sources of error during recording, which can lead to apparent discrepancies and seriously compromise the quality of inventory reliability. Against this background, various inventory simplifications have been permitted by law, of which sample stocktaking is probably the most efficient.

    Sample stocktaking has been legally applicable for stocktaking implementation since January 1, 1977, in accordance with HGB §241 (1): When preparing the inventory, the inventory of assets may also be determined by type, quantity, and value using recognized mathematical-statistical methods based on random sampling. The procedure must comply with the principles of proper accounting. The informative value of the inventory prepared in this way must be equivalent to that of an inventory prepared on the basis of a physical inventory.

    The mathematical methods permitted for sample stocktaking and how they are to be applied were defined in the early 1980s by the Institute of Public Auditors (IdW) and the Working Group for Economic Management (AWV). The rules for implementation and auditing were also specified in detail. To this end, certain operational requirements had to be met, which many companies were not yet able to fulfill at the time. This applied in particular to reliable, IT-supported inventory management. Since around the mid-1990s, the situation has improved significantly in this area, and modern warehouses generally meet the required conditions. Auditors also expect an audited system for conducting sample stocktaking.

    How does sample stocktaking work?

    A sample stocktaking is essentially a measurement procedure: the correctness of the inventory management is checked and verified, i.e., the consistency of the inventories managed by the system with the items actually in the warehouse. If this is confirmed within the permissible limits, a full inventory is not necessary. The inventory is transferred from the systems at the end of the financial year and valued (acceptance method). No value adjustment is made on the basis of an extrapolation; only quantity differences identified in the individual samples are corrected in the warehouse position.

    Requirements for a sample stocktaking

    In order to carry out a sample stocktaking, companies need an ERP or merchandise management system. The inventory quality must be at a good level: reliable inventory accounting forms the basis for this.

    The Institute of Public Auditors (IDW, 1981, p. 61) lists the following requirements:

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

    Advantages of a sample stocktaking

    In contrast to a full inventory, a sample stocktaking has a number of advantages, because counting many items with a large number of people inevitably leads to errors. Employees who are unfamiliar with the warehouse situation are often called upon to help with a full inventory. In addition, there is often time pressure, which only allows discrepancies to be checked in the case of high-value deviations.

    Sample stocktaking, on the other hand...

    • reduce the counting effort by up to 99%,
    • significantly reduce costs, error rates, and personnel requirements,
    • take the time pressure and stress off employees and management,
    • enable simplified planning and organization of the stocktaking,
    • increase process reliability after the stocktaking,
    • avoid warehouse closures and production stoppages.

    In addition, sample inventory systems can also be used for stocktaking checks during the year. In this case, it is not the external stocktaking regulations that apply, but rather internal company issues. Additional sampling in different inventory areas and product groups allows inventory quality to be monitored continuously with manageable effort.

    In which countries can sample inventory be used?

    Sample stocktaking was first legally adopted in Germany as a replacement for full inventory. In 1981, the main committee of the IdW (Institute of Public Auditors) issued a detailed statement on the implementation of this form of inventory. This statement was written in English and German, and it remains authoritative to this day and is probably the only English-language set of rules on sample stocktaking. In Austria, sample stocktaking is also permitted by law, and Switzerland accepts it as well.

    Sample stocktaking systems are also used in some countries within and outside Europe that do not have a specific legal basis for sample stocktaking. In these cases, it is necessary to consult with auditors on a case-by-case basis.

    In which sectors and industries is sample stocktaking used?

    Industry

    The method was originally used in large industrial companies such as Siemens AG. In the late 1970s, these companies already had their first IT-supported warehouses and thus fulfilled a necessary condition for sample stocktaking.

    Since then, IT-supported warehouse management has long become standard. The corresponding programs are mature, and the processes are becoming increasingly accurate. Therefore, any modern warehouse in the industrial and manufacturing sector is suitable for replacing full inventory with statistical methods.

    Retail

    The retail sector uses sampling methods, especially in warehousing. These methods make things considerably easier, particularly in wholesale and mail order, where fast response times are important.

    Sampling methods are also used successfully in stores. Their suitability then depends on the availability of inventory data.

    Logistics services

    For several years now, logistics service providers have been switching from full inventory to sampling methods. Acceptance by their customers has increased significantly, which means that the effort involved can 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, monitoring the spare parts warehouse during the year plays a particularly important role here.

    Recognized mathematical-statistical methods

    The applicable methods within the meaning of the German Commercial Code (HGB) were defined by the IdW in 1981. Basically, four extrapolation methods and the sequential test are recognized by the IdW as permissible sampling inventory methods. They are suitable for different storage situations.

    In conventional storage areas, extrapolation methods are generally used. They require moderate inventory reliability, with the counting effort comprising around 5% of the storage items.

    To this end, the counting results are evaluated using all four permissible extrapolation methods (mean value, difference, ratio, and regression estimation). The method with the most accurate result is used for stocktaking documentation. Here, regression estimation regularly proves to be the most mathematically sophisticated, but at the same time the most accurate method.

    The sequential test is considered a special method for particularly secure storage areas. It requires the least amount of counting effort – ideally only 30 samples. If the counted quantities deviate from the target quantities of the samples, further samples must be taken, which can lead to greater effort than with extrapolation methods in the case of uncertain inventories. The sequential test is particularly suitable for warehouses with a high degree of accuracy.

    The stocktaking methods can be combined with each other or carried out as a permanent variant throughout the year; the statistical methods can also be used for stocktaking checks during the year. To do this, companies must meet similar conditions as for permanent stocktaking.

    You can find more information on the topic of stocktaking here.