Inventory reporting can be simple, but it can also involve a lot of guesswork. With a perpetual, real time inventory management system, a business typically has access to always accurate inventory information that changes as inventory moves through the production process. On the other hand, a business that carries out a periodic inventory system will need to estimate current stock levels based on imperfect information. Let’s look at some of the key differences between static and real time reporting.
What is static inventory reporting?
Under a static inventory management system (also called periodic inventory management), inventory information must be updated by a regular physical count of each item in stock. Stock takes can be annual, but may be much more frequent where a business deals with a large quantity of inventory.
Static reporting involves looking to the stock count when the last stock take was carried out and manually adjusting for sales since that time. Static reporting also means that the ‘cost of goods sold’ metric can only be calculated at the end of the accounting period, or when the next stocktake is done.
What does real time reporting involve?
In the inventory context, real time reporting means that a user is able to view up-to-date and accurate inventory information, such as current inventory levels or the location of a particular item of stock. From an accounting perspective, real time inventory reporting allows staff to run the numbers in real time; revenue, profit and the ‘cost of goods sold’ can all be calculated on an ongoing basis.
Crucially, real time reporting relies on a perpetual inventory management system where inventory records are updated immediately whenever an item of inventory moves throughout the production or sales processes. Each inventory transaction – ordering new inventory, producing a product using a bill of materials or shipping an order – is recorded in the inventory management system at the time the event happens.
Real time inventory reporting has a number of advantages compared with static reporting at the end of the accounting period. In particular, businesses typically find that it is easier to make key decisions with access to reliable, current inventory data. Under a periodic inventory management system, querying a stock count typically involves unreliable estimation or, where the information is critical, an unexpected stock count. On the other hand, any user can instantly run a report for the same information in a real time system.
Is real time inventory reporting expensive?
It is a common belief is that only large businesses can afford to track inventory and report in real time. Whereas static inventory reporting is often a low upfront cost approach using clipboards and spreadsheets, real time reporting typically involves using specialised inventory management software.
Although very young businesses may initially prefer static inventory management and reporting as a low cost option, the perception that inventory management software is expensive does not stack up. Many inventory management tools, particularly cloud-based SaaS tools, charge a small monthly fee. Given the time savings and access to always accurate data, real time inventory control is a worthwhile investment.