How to Use a Perpetual Inventory System for Your Business

If you want to keep track of your inventory in real time, you might want to consider using a perpetual inventory system. This is a system that continuously records and updates your inventory levels with every purchase and sale of your products. In this article, we will explain what a perpetual inventory system is, how it works, what its advantages are, and how you can implement it for your business.

Key Takeaways

A perpetual inventory system is a system that continuously records and updates your inventory levels with every purchase and sale of your products

A perpetual inventory system provides you with accurate and up-to-date information about your inventory levels, reduces the need for physical counts of your inventory, allows you to integrate your inventory data with other business systems, and enables you to monitor and analyze your inventory trends

To implement a perpetual inventory system for your business, you will need to choose an inventory management software, set up your inventory database, conduct a physical count of your inventory, connect your PoS systems and barcode/RFID scanners to the software, and monitor and review your inventory data regularly

What is a perpetual inventory system?

A perpetual inventory system is an accounting and inventory management method that continuously tracks and records inventory changes (with every transaction). It does this using supply chain management software and digital input devices such as point-of-sale (PoS) systems and barcode/RFID scanners.

A perpetual inventory system starts with a baseline from a physical count of your inventory and then updates it based on the purchases you make from your suppliers and the sales you make to your customers. The system automatically adjusts your inventory records in real time, so you always know how much stock you have on hand.

A perpetual inventory system differs from a periodic inventory system, which is a method where you update your inventory records only at certain intervals, such as weekly, monthly, or annually. A periodic inventory system requires you to do physical counts of your inventory regularly and manually adjust your records based on the results.

What are the advantages of a perpetual inventory system?

A perpetual inventory system has several benefits for your business, such as:

It provides you with accurate and up-to-date information about your inventory levels, which can help you avoid stockouts or overstocking.

It reduces the need for physical counts of your inventory, which can save you time, money, and labor.

It allows you to integrate your inventory data with other business systems, such as accounting, finance, sales, and marketing. This can help you comply with tax and other regulations, improve customer service, and optimize your business performance.

It enables you to monitor and analyze your inventory trends, such as sales volume, turnover rate, profitability, and demand patterns. This can help you make better decisions about your inventory management, such as pricing, ordering, replenishment, and forecasting.

How to implement a perpetual inventory system for your business?

To implement a perpetual inventory system for your business, you will need to follow these steps:

1. Choose an inventory management software that supports a perpetual inventory system. You will need a software that can track and record your inventory transactions in real time, integrate with your PoS systems and barcode/RFID scanners, and generate reports and insights about your inventory performance.

2. Set up your inventory database with the software. You will need to enter the details of your products, such as name, description, SKU number, price, cost, quantity, location, etc. You will also need to enter the details of your suppliers and customers, such as name, address, contact information, etc.

3. Conduct a physical count of your inventory to establish a baseline. You will need to count all the products you have in stock and enter the results into the software. This will be the starting point for your perpetual inventory system.

4. Connect your PoS systems and barcode/RFID scanners to the software. You will need to ensure that every time you buy or sell a product, the transaction is recorded by the software and reflected in your inventory database.

5. Monitor and review your inventory data regularly. You will need to check your inventory reports and dashboards to see how your inventory levels are changing over time. You will also need to compare your book inventory (the amount recorded by the software) with your physical inventory (the amount counted by hand) periodically to identify any discrepancies or errors.

Tips

Choose an inventory management software that suits your business needs and budget

Train your staff on how to use the software and the input devices correctly and consistently

Implement inventory control policies and procedures to prevent or minimize inventory errors or discrepancies

Conduct physical counts of your inventory regularly and compare them with your book inventory to verify and correct your inventory records

Analyze your inventory data and use it to improve your inventory management practices and strategies

Perpetual Inventory System: A Growing Trend in Inventory Management

Inventory management is a crucial aspect of any business that deals with physical goods. It involves keeping track of the quantity and value of the products that are purchased, stored, sold, or returned. There are different methods of inventory management, but one of the most popular and efficient ones is the perpetual inventory system.

What is a perpetual inventory system?

A perpetual inventory system is a system that continuously updates the inventory records in real time, using digital devices and software. Every time a product is bought, sold, or returned, the system automatically records the change in the inventory level and value. This way, the system always shows the current and accurate status of the inventory, without the need for periodic physical counts.

What are the advantages of a perpetual inventory system?

A perpetual inventory system has many benefits for businesses, such as:

It provides a detailed and accurate view of the inventory, which helps to prevent stockouts, overstocking, or inventory shrinkage.

It reduces the time and cost of physical inventory counts, which can be disruptive and prone to errors.

It improves customer service by providing information on product availability, delivery times, and order tracking.

It facilitates inventory planning and forecasting by providing historical data and trends.

It simplifies accounting and reporting by providing real-time inventory valuation and cost of goods sold (COGS).

It integrates with other business systems, such as finance, sales, purchasing, and production, to streamline operations and ensure compliance.

How to implement a perpetual inventory system?

To implement a perpetual inventory system, a business needs to have:

A reliable and user-friendly inventory management software that can track and record inventory changes in real time, using various methods such as barcode scanning, RFID tagging, or point-of-sale (POS) systems.

A consistent and accurate method of recording inventory transactions, such as purchases, sales, returns, transfers, or adjustments.

A regular and thorough verification of the inventory records against the physical inventory, to identify and correct any discrepancies or errors.

Frequently Asked Questions

Q: What is the formula for perpetual inventory?
A: The formula for perpetual inventory is:

Ending Inventory = Beginning Inventory + Purchases – Sales

This formula shows how the ending inventory balance is calculated based on the beginning inventory balance, the purchases made during the period, and the sales made during the period.

Q: What are some examples of businesses that use perpetual inventory systems?
A: Some examples of businesses that use perpetual inventory systems are:

Retail stores that sell products directly to customers through PoS systems
E-commerce businesses that sell products online through web platforms
Manufacturing businesses that produce products from raw materials through production processes
Distribution businesses that store and deliver products from suppliers to customers through warehouses

Q: What are some challenges or limitations of perpetual inventory systems?
A: Some challenges or limitations of perpetual inventory systems are: