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Perpetual Inventory System

What is a perpetual inventory system?

A perpetual inventory system is a method for inventory accounting that records the sale or purchase of products in real-time via advanced software solutions. By utilizing perpetual inventory, retailers have a highly-detailed view into inventory changes, thanks to accurate (and immediate) reporting on stock levels and available SKUs. Using this system, companies don’t have to make any effort in keeping detailed inventory records on hand; rather, purchased goods are automatically recorded as a debit to the inventory balance. 

4 advantages of a perpetual inventory system

Perpetual systems are the standard among large and some small business owners, because they offer numerous advantages periodic accounting methods cannot. These benefits include real-time counts, fewer stockouts, reduced errors, and greater accuracy of inventory accounts.

1. Real-time counts

When you implement perpetual updates within an inventory management system, the program will continually refresh with the latest inventory information. In other words, all inventory counts are live, with real-time insights about what’s in stock at any point. This ensures you don’t over promise/under deliver on fulfillment, and supports customer satisfaction with every order. 

2. Fewer stockouts

Perpetual inventory systems allow for immediate inventory tracking, an important feature periodic inventory systems can’t claim. Not only does maintaining current counts for your SKUs and raw materials help prevent stockouts, it guarantees demand is always met, as well. Plus, avoiding stockout events is one the best ways to keep your supply chain running smoothly.

3. Reduced errors 

Whereas periodic systems require management to pause their operations and conduct a physical inventory count, perpetual systems harness automations to eliminate the need for time-consuming physical counts (thus reducing human error). This reduction in errors supports better accounting practices, and makes the order fulfillment process much easier, as well. 

4. Greater accuracy

Because perpetual inventory systems automatically track product movement through every stage of the supply chain, there’s much greater accuracy when using a perpetual approach. This level of inventory control has been made possible by advancements in inventory management software, and has truly revolutionized the way inventory valuation is conducted. 

Frequently Asked Questions

  • How does a perpetual inventory system work?

    The perpetual inventory method continually updates your inventory items by recording the cost of goods sold, received, moved, and more. This real-time inventory accounting closely keeps track of inventory around the clock, and delivers the most precise, up-to-date information possible. While perpetual inventory control requires a bit more hardware (like RFID and barcode scanners), the upside is it offers the most reliable record-keeping across all channels.

  • Why do companies use perpetual inventory systems?

    A perpetual inventory control system is best suited for brands with complex inventory operations and multiple sales channels. With perpetual inventory solutions, inventory reports can be accessed online at any time, which makes it easier to manage inventory levels and the cashflow needed to cover future COGS. And due in large part to their built-in automations, perpetual systems have now become the go-to platform for ecommerce optimization.

  • What is an example of a perpetual inventory system?

    When you utilize perpetual inventory, the point of sale system will automatically make changes to your inventory levels. This means you can access your inventory reports online anytime, making it much simpler and more streamlined to manage or purchase inventory. Grocery stores often use a perpetual inventory strategy; each time a product barcode is scanned and purchased, the system will automatically update the stock counts in that store’s database.

More terms and formulas

inventory ABC Inventory See definition and examples
inventory Inventory in transit See definition and examples
inventory Decoupling Inventory See definition and examples

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