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Perpetual Inventory Systems: How They Work

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Perpetual inventory systems are a critical part of managing inventory, especially for eCommerce businesses. They provide real-time visibility into stock and inventory levels, so business owners can make informed decisions that ensure customers receive the products they ordered, on time, every time. Managing inventory is critical to the success of any business that sells and/or ships products. Read on to learn more about whether a perpetual inventory system might be right for you and your business.

What is a Perpetual Inventory System?

A perpetual inventory system is an automated system that tracks and manages the number of items in stock at any time. It records every purchase or sale made by the business and any adjustments due to returns or damages. This information is used to update current stock levels and accurately reflect what’s available for sale 24/7. The perpetual inventory method differs from periodic inventory systems, which only track the number of goods purchased or sold during specific periods (like the end of each month or quarter). The latter method relies on estimates, not exact numbers, and it doesn’t require frequent physical counts. Both systems have advantages and disadvantages depending on a business’s size and needs. More business owners today are using perpetual inventory systems due to the accuracy they offer in tracking changes over time.

Benefits of Implementing a Perpetual Inventory System

A perpetual inventory system is a powerful tool for any eCommerce businesses that ship products. It helps ensure accurate and up-to-date records of inventory levels, in real-time, which is more important than ever with online shopping happening 24 hours a day. Using a perpetual inventory system provides several benefits, including improved accuracy, cost savings, and better decision-making.

Improved inventory accuracy

One of the most obvious advantages of perpetual inventory systems is that they track the movement of goods in real-time as items enter or leave a warehouse. This means it’s easier to keep an accurate record of current stock levels, reducing the risk of over- or under-stocking product. Additionally, it reduces the chance of manual counting errors.

Cost savings

A perpetual inventory method can minimize costs by tracking stock levels in real time and automating certain processes – like ordering new supplies or canceling orders when needed. This helps save money by avoiding unnecessary purchases and delays caused by inaccurate information about available stock.

Better decision-making

With access to up-to-date information about current stock levels, business owners can make more informed decisions regarding purchasing strategies and other aspects of managing inventories effectively. The data provided also makes it easier to forecast future demand and adjust stocking policies accordingly without risking shortages or excesses in supply.

Challenges of Implementing a Perpetual Inventory System

Implementing a perpetual inventory system can be challenging for some business owners. There are upfront costs associated with purchasing the program, as well as the cost to train staff to use it. Additionally, ongoing maintenance is required to ensure that the system is functioning properly and up-to-date with any changes in the business’s needs.

Upfront costs

One example of perpetual inventory system challenges could be the initial cost of implementing it. A new system often requires purchasing hardware (like scanners or computers) or software programs. Training staff on how to use the system can be yet another expense.

Ongoing maintenance

Once implemented, a perpetual inventory system requires regular updates and maintenance to remain accurate and reliable. This could include things like:
  • Regularly checking stock levels against actual physical counts of products stored at warehouses or other locations
  • Periodically cross checking that records are updated when items are sold or returned
  • Ensuring that all data is backed up securely
  • Making sure employees have access only to the information they need
  • And more
Tasks like these require dedicated resources from within the organization, which could be costly if not managed properly.

Changing business needs

Businesses grow and expand – which is great – but it means their needs change over time. Adjusting a perpetual inventory system along the way will be imperative to success.

Tips for Successfully Implementing a Perpetual Inventory System

Real-time visibility into stock levels allows businesses to track inventory accurately and ensure they never run out of products. But as we’ve seen, implementing the right system can have its challenges. The following tips will ensure success as you begin using a perpetual inventory system:
  1. Train your team: Training your team on the new system is critical. Make sure everyone understands how the software works and how to use it properly so that you can get the most out of it.
  2. Invest in reliable technology: A good perpetual inventory system needs reliable technology that won’t crash or slow down when you need it most. Invest in quality hardware and software that will support smooth operation.
  3. Automate where possible: Automation can help streamline processes and reduce errors associated with manual data entry tasks, like entering orders or tracking shipments. Look for ways to automate certain aspects of your process.
  4. Establish clear policies and procedures: Establish clear policies and procedures around how data should be entered into the system, who has access, etc. This way, everyone knows what’s expected of them when using the software, and operations will run more seamlessly.
  5. Monitor performance regularly: Running reports on key metrics – like sales volume or customer satisfaction ratings – helps you identify issues before they become more serious. Monitoring things closely keeps your day-to-day operations running more smoothly overall.

Perpetual Inventory vs. Process Inventory: What’s the Difference?

What is a perpetual inventory system in comparison to process inventory systems? Essentially, they’re just two different types of inventory management methods that businesses use to track stock levels. Each has advantages and disadvantages, so it’s essential to understand the differences between them before determining which system is best for your business.

Level of automation

Perpetual inventory systems are highly automated. Barcode scanners or RFID tags accurately count items and products as they enter and leave the warehouse. Process inventory systems rely on manual counting processes that require employees to count items to maintain accurate physical records.

Frequency of inventory counts

The perpetual inventory method allows businesses to continually monitor their stock levels without conducting regular physical counts. Process inventory systems require more frequent, costly, and time-consuming manual counts for businesses to stay up-to-date on stock levels.

Suitability for different business types

Businesses with a lot of SKUs (stock keeping units) might benefit from perpetual inventory systems that are more efficient in tracking product movements. Conversely, smaller operations may find process inventory systems more straightforward and less expensive since there’s no need for additional technology like barcode scanners or RFID tags. Furthermore, if accuracy isn’t critical, process inventory systems might be perfectly adequate. They don’t involve complex technology or procedures like perpetual inventory systems will.

Conclusion

If you’re looking for an effective way to manage your inventory, a perpetual inventory system may be the solution you’ve been searching for. Its ability to accurately track product availability and quickly fulfill orders can save you time and money while providing better customer service.

Interested in learning more about how ShipCalm can help implement a successful perpetual inventory solution? Contact us today or visit our pricing page for more information.

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