Inventory management is a method for acquiring, keeping, and selling inventory, including both raw materials and completed products. A perpetual inventory system or a periodic inventory system is the two types of inventory management systems used by businesses. This brief guide will explain the perpetual inventory system – which is an inventory management strategy that uses technology to record real-time transactions of received or sold stock.
What’s Involved in Perpetual Inventory?
Businesses used to utilise what’s known as a periodic inventory system, in which they physically counted what was on the shelves to keep track of what was in stock. However, as time went by – they were compelled to close storefronts or departments to perform inventory or pay staff to work overtime to figure out what stock was on hand. As you might be able to imagine, this is unsustainable and might be a waste of time in some circumstances. While it is possible to link periodic inventory to your POS system, most initial counts are done by hand or with a spreadsheet that is then exported – which also leads to a higher rate of human mistakes. Many firms have recently found it simple to move to a perpetual inventory system, thanks to automated cash registers that maintain accounts of each item sold. As things are bought and sold, a perpetual inventory system updates inventory counts on a regular basis. This inventory accounting approach is more precise and efficient than a periodic inventory system in terms of inventory accounting.
5 Advantages of Perpetual Inventory
A periodic inventory system relies on employees to conduct regular stock audits to keep inventory information up to date. Here are 5 ways perpetual inventory have a positive impact on your supply chain and operational management:
1. You’re provided with real-time analytics
When inventory is acquired and sold, changes to inventory levels are recorded in real-time in a perpetual inventory system. This continuous stock-taking allows you to generate reports that can identify inventory items that are running short in real-time. It also avoids being out of supply for a specific item and losing clients as a result. Instead of having to wait for your next scheduled inventory day, you may rapidly replenish anything that is out of stock or running short. Throughout your eCommerce supply chain, a perpetual inventory system tracks inventory movements and interactions – which makes for a solid, traceable paper trail at any given time. This information can help you identify bottlenecks in your processes and find solutions to improve your supply chain.
2. Enjoy everything in one centralized location
Furthermore, perpetual inventory centralises all product data across all brick-and-mortar locations as well as your online store. It’s impossible to keep track of all your stores’ inventories separately. Using perpetual inventory to automate stock notifications, reordering levels, par levels, vendor interactions, and more, improves business processes.
3. Avoid shrinkage and fraudulent actions
The year-end inventory balance is modified to agree with the physical inventory count in a periodic inventory system. As the adjustment is transferred to the account for the cost of items sold, any theft, shrinkage, or even count errors are hidden. A perpetual system compares the system’s inventory balance to the year-end count, allowing you to explore any discrepancies. To identify the disparities, you’ll need to count the products on the shelves at some point. Perpetual inventory won’t tell you how stuff is vanishing from your shelves, but it will alert you when there’s an issue, allowing you to increase security and figure out what’s going on.
4. It works better for retailers managing various locations
Similarly, cloud-based, real-time data simplifies the management of larger businesses. It’s impossible to be in two locations at once, but with this technique, you can get a lot closer. No matter where you are, you may make modifications, place orders, change stock par levels, and much more. You can save storage or warehouse space by using more efficient ordering and predictive analytics. Instead of continually erring on the side of caution and ordering too much, businesses can be assured that they are ordering the correct amount every time. Many inventory-intensive organisations regularly monitor inventory levels versus sales. This eliminates a build-up of unsold inventory, which can be costly to the company. The inventory levels are always right with a perpetual inventory system, and the inventory turnover ratio can be calculated appropriately. The turnover ratio shows a business owner if sales are declining or if specific products are no longer selling well.
5. You get to reduce unnecessary business expenses
Inventory holding costs and inventory replenishments are controlled and minimised with real-time data. Furthermore, a perpetual inventory system enables managers to compare data to actual inventory to look for discrepancies. Although periodic physical inventory checks are still a good idea – especially to check for theft, spoilage, and probable human errors — daily inspections are unnecessary, saving money on manpower. It’s also a time-saving approach because employees don’t have to do boring inventory counts every day to figure out how much product is accessible.