Stock takes can be a painful experience, and they cost your business. A manual stock take can take a lot of time and effort, often requiring the closure of the shop floor or the warehouse for a period of time. Although occasional stock takes will always be a feature of proactive inventory management, implementing an inventory management system with perpetual stock counting can cut out the bulk of the pain.
What does it mean for inventory management to be ‘perpetual’?
At its core, perpetual inventory means that an inventory management system maintains inventory records in real-time. That is to say, immediately after each transaction the record is updated so that the inventory management system is one, always-accurate source of the truth at that moment.
In a perpetual inventory system, inventory records are updated in real-time to reflect the purchase, production, shipment, sale or storage of stock. At any time, staff should be able to accurately query the amount of inventory on hand, and to view transactions and trends within the period between stock takes. Moreover, a truly perpetual inventory management system will update accounting records in real-time – so there is no need to wait until the end of an accounting period to track revenue, profit and the cost of goods sold.
Early implementations of perpetual inventory relied on stock cards, which operated in a similar way to ledger cards. Stock cards have been implemented both on paper and electronically in a spreadsheet. More recently, perpetual inventory has been transformed by using specialized software. Specialized inventory software typically integrates with other business functions and automates manual processes. For example, in a perpetual inventory system, barcode scanning or RFID tagging might record stock movement from a warehouse, through the logistics process and right to the shop floor. An individual item of stock can be pinpointed, and aggregate inventory can be queried at any stage of the chain.
Perpetual inventory can also be used to automate certain processes, especially in the context of just-in-time or lean inventory methodologies. A system could be configured to order more of a particular component or item as inventory falls below a given threshold.
What are some of the advantages of perpetual inventory?
The most obvious advantage of implementing a perpetual inventory system is having fewer stock takes to carry out. Stocktaking is still required at the end of a period to correct for occasional errors and to identify stock shrinkage (including damaged, lost and stolen stock), but the overall burden across a period is greatly reduced.
One of the biggest advantages of perpetual inventory management when compared to a periodic system is the wealth of always-accurate inventory data that is available to the business. In a periodic system, finding out how much of a particular product is in stock could either involve guesswork or a time-consuming manual count; with a perpetual system, querying inventory levels is as simple as running a report. Visibility is also improved across an accounting period – rather than understanding stock trends through the lens of infrequent data points joined by a straight line, inventory managers can see actual inventory movement in real-time across a period. Sudden inventory events can be distinguished from gradual trends – so it becomes easier to identify triggers that stimulate or reduce inventory activity. This is especially useful in a very forward-looking industry where accurate demand forecasting is necessary to place accurate orders well ahead of time.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.