Understanding Perpetual Inventory

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A perpetual inventory system is also known as a continuous inventory system.  The premise of this type of inventory system is that is allows businesses to keep a real-time account of what inventory they have in stock.

How perpetual inventory works

The widespread use of automated and computerized systems makes this type of inventory tracking very achievable and beneficial to companies. Businesses are able to easily keep track of inventory as it sells. The perpetual inventory system uses tools such as barcodes, radio frequency identification (RFID) scanners, and point-of-sale (POS) systems to assist this type of inventory tracking as they rapidly record inventory information. When a customer purchases an item, the item is instantly scanned and therefore tracked.

This type of inventory system requires a complex infrastructure in order to facilitate the tracking mechanisms. Perpetual inventory is often used in large businesses whereas simpler systems like periodic inventory are generally seen in smaller businesses.  Perpetual inventory systems are also used when a company has more than one location or when a business carries expensive goods such as an electronics company or jewelry store.

It is important to note that errors in inventory are often due to loss, breakage, theft, incorrect inventory tracking or scanning problems.  These errors are disadvantages but need to be weighed against the many positives of a perpetual inventory system.

With a real-time system updating constantly, there are many advantages to the business owner. It is a proactive way to prevent stock from running out as when stock is low it can be instantly identified and stock can be reordered. It also gives business owners a better understanding of customer buying patterns and their purchasing behavior.  A more accurate understanding of customer preferences can guide which items a business stocks and when they place them on the sales floor.  If a company has several locations, a perpetual inventory system centralizes this management. It amalgamates all information and places it in one consolidated and accessible place. Overall, this automated system is more accurate and accurate information can be very valuable to a business owner. It can assess if customers were responsive to discounts, their purchasing habits, and if they returned any items. Unlike periodic inventory systems, the perpetual module reduces the need for frequent, physical inventory counts.

In order for perpetual inventory systems to work as accurately as possible, the quality of both the system and data needs to be high. Cloud-based inventory management software can be a powerful tool in executing a high quality inventory system. In order to best utilize the real-time data of a perpetual inventory system, an automated and advanced system will yield the most consistent results, reducing the risk for errors. If a business is small and anticipates growth, it is worth looking into switching to from a periodic system to a perpetual system.

With this real-time data it allows for companies to be more competitive. A perpetual inventory system can bring many advantages that allow for an in-depth understanding of consumer purchasing behavior.  This kind of information has the power to shape the way a company operates, encouraging performance at their optimum level.

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Melanie - Unleashed Software

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.

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