• by ASP Microcomputers / From Stocktaking / April 30, 2019 /

    Understanding Inventory Management – The Perpetual Inventory System

    Inventory management is one of the trickiest parts of running a retail store. The inventory that you hold is vital to your business.

    However, for some companies, especially those that sell products of volatile value, it can be hard to account for the value of the goods that they hold.  

    There are two main ways of accounting for a business’ inventory. They are periodic inventory systems and perpetual inventory systems.

    What Is the Perpetual Inventory System?

    Perpetual inventory means accounting for inventory by recording the sale of, or purchase of, inventory immediately. 

    This is usually done using a computerised point of sale systems, and asset management software.

    With perpetual inventory, you have a detailed and immediate/constant running update of the changes in your inventory, with immediate knowledge of the amount of inventory that you have in stock.  

    One of the benefits of perpetual inventory management is that it means you do not have to manually adjust the inventory when you do your accounts.

    However, there are exceptions made where breakage, theft, or loss of goods mean that the inventory report disagrees with actual stock.  

    It is easier to work out the economic order quantity for goods since managers know exactly how much stock they hold and how fast the stock moves at any time.

    When Should the Perpetual Inventory System Be Used?

    The perpetual inventory system is ideal for businesses that see a fast movement of goods. 

    Because the inventory is constantly being updated throughout the operation of the business, there is no need to stop trading to conduct a “full inventory” each accounting period. 

    It does not do away with the need for stock-taking, but it does mean that it is much easier to see discrepancies and to keep stock up to date with minimal disruption.

    Perpetual inventory systems keep the general ledger or inventory ledger up to date as transactions occur.

    It also makes it easier to keep the cost of goods sold up to date with each sale that is made. 

    With the perpetual inventory system, purchases are recorded into the merchandise account, and it is immediately clear how much inventory is held.

    These differences mean that in most cases, if the IT resources are there, it makes sense to use the perpetual inventory system. 

    There are some instances where periodic inventory may be better. 

    If you are dealing with a very small amount of inventory which can be reviewed ‘at a glance’, then there may be no need to use perpetual inventory systems. 

    In addition, if you have a large warehouse with staff that are not well-trained in perpetual inventory systems then sticking with what the staff know is a good idea in the short to medium-term to help avoid errors. 

    In the long term, however, moving people over to the use a perpetual inventory system would stand the business in good stead.

    The tools are out there, and the system is far less error-prone and far less disruptive when you are dealing with a large number of fast-moving products. 

    If you would like to know more about the best stocktaking solutions and how the right set of software and point of sale systems could help you, give us a call.

    Our team would be happy to discuss your needs and to help you build new, more efficient workflows that will support the best operation of your warehouse or store. 

    We have the right tools for companies of all sizes and will work to accommodate your business, supplying you with technologies that are tailored to suit your business to help improve your efficiency and accountability.

    We are the market leader when it comes to the development of customised and packaged solutions.

    This includes Inventory Management, Portable Barcode Readers, Supply Chain Management, Time and Attendance and Asset Tracking to name but a few.

    Please call us today on 03 9578 7600 or 1800 061 642 or contact us through our website on https://www.asp.com.au/contact-us/.