How To Save Time With A Perpetual Inventory System

When you started your business, you likely had very different inventory management needs. Maybe you started off with a few products then grew into new markets and verticals. Along the way, you might have gone from keeping inventory in your garage to using a storage locker, and then finally moved into your own warehouse.

As your product lines have increased and your supply chain has become increasingly complex, your old approach to inventory management may not be cutting it anymore. Accurately accounting for inventory with a handful of SKUs is a vastly different job than accounting for hundreds, or for thousands.

What is periodic inventory?

Periodic inventory is an inventory valuation method where a company performs a physical inventory count at the end of an accounting period, typically by scanning barcodes. Since physically counting every object in your inventory is extremely time-consuming (and costly when you factor in the necessary labour), most businesses conduct only one every year.

It might work well for small businesses with a low number of SKUs and a small number of products, but it’s too much manual labour for a larger organisation. Additionally, periodic inventory is more prone to human error. After all, even the most detail-oriented employee can miscount or may not count inventory that isn’t in the expected spot.

In a periodic inventory system, you don’t have much insight into your inventory balance throughout the accounting period. The inventory balance only gets adjusted once the manual physical counts are completed. In the meantime, you’re forced to estimate the cost of products sold, which could lead to a big adjustment if you’re way off.

Perpetual inventory counting systems have tried to address these challenges by using technology to help companies gain better insight into sales transactions and inventory on hand.

What is perpetual inventory?

The perpetual inventory method is a real-time inventory management system that uses software to record sales immediately, so you can understand how much stock you have on hand.

Driven by a point-of-sale system (POS), a perpetual inventory counting system automatically updates your inventory levels using sales data. When an item is sold, the inventory totals are updated in real-time.

Transactions recorded in perpetual inventory systems include:

• Inventory purchased or received
• Goods sold from your stock on hand
• Decommissioned inventory (expired or out of season)
• Goods used for production

Benefits of perpetual inventory

Companies that invest in perpetual inventory systems can benefit in a few ways, including:

Prevent stockouts

As the retail landscape becomes more competitive due to online shopping, customers are increasingly frustrated to find bare shelves (or an out-of-stock page). When you gain real-time insight into how much inventory you have on hand, you’re better prepared to have precisely the safety stock you need by triggering a reorder point, lowering the amount required to be kept on hand. 

Make more informed decisions.

When you have real-time insight into key metrics like the cost of goods sold (COGS), you can make decisions that positively impact your company's financial health.

Create more time for innovation.

Instead of frequent manual counting, employees can devote their time to higher-value activities.

Gain a faster understanding of ending inventory.

Ending inventory, the final value of goods still for sale at the end of an accounting period, is a crucial metric for your business’s financial health. Instead of waiting until a manual count is performed, as with a periodic inventory management system, you can gain this insight immediately.

Understand and track defective inventory.

With a perpetual inventory system, you can track items individually. If a defective or faulty item is discovered, it’s easy to see how much of that product you have on hand so you can ensure it’s properly removed from your stock and safely disposed of.

Three ways to save time with a perpetual inventory system

By now, it’s probably pretty clear how much time you can save when you have access to real-time inventory information.

But business owners benefit from closely keeping track of inventory in other ways too:

Faster planning and forecasting

Instead of waiting for the end of an accounting period to perform planning tasks, you can prepare for the next season in advance thanks to accurate insight into stock levels.

Fewer errors

Although no system is perfect, inventory management software, combined with a perpetual inventory accounting system, can provide you with more accurate recordkeeping.

Faster decisions

Instead of waiting for data from a manual inventory count to come in, business owners can check inventory records and generate reports that inform decisions in real time.

Combined with a robust accounting ecosystem like QuickBooks, a perpetual inventory management system can make life as a business owner easier. QuickBooks can help you establish a financial foundation for your business to help you achieve your goals faster. Visit our pricing page to get a 30-day free trial.