Inventory is an asset to a company but when not managed properly, it can become a liability. Inventory management is a crucial part of warehousing and fulfillment centers. It ensures smooth, accurate, and timely order fulfillment. There are many inventory management methods, out of which Perpetual Inventory System is one of the highly adapted methods among businesses. Show
Perpetual inventory system manages the inventory ‘perpetually’ i.e., in real-time. It helps businesses stay up-to-date and provides better insights into inventory. But is it the best choice for your business? Let’s find out! Manage inventory trouble-free with Fulfillment Hub USA!START NOW! Content Topic
All About Perpetual Inventory SystemInventory management of a business defines the quality of its order-fulfillment service. It has to be accurate and smooth to retain customers and stay ahead in the industry. Unfortunately, choosing a suitable method for your business isn’t easy. According to Compunnel Digital, 21.6% of companies are unsure which inventory management method suits their business. Many businesses favor the perpetual inventory method because of its real-time updates and accuracy over other traditional methods. Continue reading this article to know more about it. What is Perpetual Inventory System?A perpetual inventory management system is an inventory accounting method that uses real-time tracking. It updates the data as soon as stock is added or shipped through every point of sale. Records get automatic updates for purchases and returns as well. The president of Max Muller & Associates LLC and Author of “Essentials of Inventory Management,” Max Muller says,
To track inventory in real-time, a perpetual inventory system makes use of barcode scanning, radio frequency identification (RFID) scanners, and inventory management software. All the technologies and modern cloud-based software make perpetual inventory systems more practical. Additionally, it empowers financial and accounting departments and speeds up the process. Process of Perpetual Inventory SystemIn a perpetual inventory system, inventory accounts are updated in real-time as soon as goods are bought and sold. Here is a quick run-through of how this system works: 2. Cost of goods sold is updated automatically
Difference between Perpetual Inventory System and Periodic Inventory SystemBusinesses that use Perpetual Inventory SystemAutomation is becoming a significant part of many businesses as it reduces human errors and improves accuracy within the system. However, when it comes to a perpetual inventory system, it is beneficial for few types of businesses. The perpetual inventory system is best for businesses with multiple warehouses and large amounts of inventory. The system helps them maintain transparency and process the order quickly. For example, you own clothing business and you receive an order for a Halloween costume in the month of March, which is rare. Now how will you find the costume across all your warehouses? Well, with the implementation of a perpetual inventory system, you can sit back and relax because with one click you can look for the costume across all your warehouses and fulfill the order with ease. Small and medium-size businesses (SMBs) that are looking to grow rapidly can adapt to this method of inventory management. Additionally, it is a good solution for drop-shipping companies. Their products are always moving and to keep track of them, it is better to have real-time tracking in place. Different Types of Perpetual Inventory SystemThere are different ways to track inventory in a perpetual inventory system. It depends on the type of cost-flow assumption method you are using. A cost-flow assumption is a method of inventory accounting that uses the original value of products from the beginning inventory of a period and purchases of new inventory during that period to calculate the value of ending inventory and COGS. There are three types of cost-flow assumptions: FIFO, LIFO, and WAC. Let’s dive into them! FIFO Cost-Flow Assumption LIFO Cost-Flow Assumption Weighted Average Cost-Flow Assumption The average cost is assigned to each unit when you make an inventory transaction. It also calculates ending inventory and COGS for a period. It yields a mid-range cost, hence, a mid-range profit. Moreover, businesses that don’t have inventory variation in their inventory prefer this method as it is simple and easy to apply. Pros and Cons of Perpetual Inventory SystemA perpetual inventory system makes the inventory management process smooth. However, to decide if this method suits your business or not, here are some pros and cons: Pros
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Know More To Sum UpThe goal of using any inventory accounting and management method is to streamline the operations. If this is achievable with a perpetual inventory system for your business, then adapt the technique without any doubt. On the other hand, if it is challenging to optimize operations with the perpetual system, there’s always an option to use either the periodic method or an even better hybrid approach of the perpetual and periodic inventory system. Streamline Your Order-Fulfillment with Fulfillment Hub USAWe, at Fulfillment Hub USA, have automated our order-fulfillment services to ensure accuracy and on-time delivery. Our team equips you with warehouse management software that provides you with real-time updates of your inventory, tracks your packages, and helps you in planning and forecasting for your business with detailed insights. FAQsWhat is a perpetual inventory system? How does a perpetual inventory system work? Why do companies use perpetual inventory system? What is the advantage of perpetual inventory system? Which one is better: perpetual inventory system or periodic inventory system? CONTACT US Anjali She is an avid reader turned content creator. She has over 4 years of experience in writing B2B and B2C website content, articles, and social media content. She has worked with different types of content; from tweets to full-fledged video scripts and privacy policies. Apart from reading and writing, she connects with plants, travelling, and psychology. What are the requirements for inventory?Nature of Arrangement with Supplier of Goods.. Factor # 1. Nature of Business Activity:. Factor # 2. Inventory Turnover:. Factor # 3. Method of Inventory Valuation:. Factor # 4. Management Ability to Predict Disruption:. Factor # 5. Nature of Arrangement with Supplier of Goods:. Why is perpetual inventory essential in the store?A perpetual inventory system is superior to the older periodic inventory system because it allows for immediate tracking of sales and inventory levels for individual items, which helps to prevent stockouts.
What are the essentials of inventory control?Tips for managing your inventory. Prioritize your inventory. ... . Track all product information. ... . Audit your inventory. ... . Analyze supplier performance. ... . Practice the 80/20 inventory rule. ... . Be consistent in how you receive stock. ... . Track sales. ... . Order restocks yourself.. What are essential inventory characteristics?Inventory characteristics include how much inventory to order, the order cycle, which is how often to place orders for the product; as well as supplier information, product cost, product lead time, minimum and maximum order quantities, lot-size availability, product unit of measure (pieces, each, tons, bags) and other ...
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