The Perpetual Inventory System: The Good and Bad
Inventory management is needed in order to keep track of a company’s goods and services. If you do not know what you have in stock and what products you are selling, then you have no way of maximizing your profits. When it comes to controlling inventory, there are two main systems that can do it. They are the perpetual and periodic inventory systems. The difference between the two is basically the manner in which they are updated. But, for the purpose of this article, we will concentrate on the perpetual system.
With the perpetual system, the inventory is always updated. Whenever an order is placed, received or shipped, the corresponding product will be updated in the system at that exact moment in time. This is mostly possible due to technological advances that allow computers to be updated in real time. When product is received, it is put into the system via bar coding technology. The perpetual inventory system is extremely popular because all retrieved and delivered information is up to date and in real time. You are guaranteed that the information that that is received within the reports is the most up to date information available.
However, if there are any mistakes, it is usually due to human error. The information is only as accurate if it is entered into the system. It cannot be seen, analyzed or corrected if it is never keyed into the system. This is why it is important that all orders are handled at the time that they are placed, received or shipped.
Of course with any type of system there are going to be both pros and cons. Other than real time updating, one of the main benefits of using the perpetual inventory control system is that it is a time saver. For instance, if sales personnel must know how much inventory is in stock before they can sell it to potential customer. This is especially true if the customer is expecting same day delivery. With a perpetual system, a salesman can check inventory stats on his laptop or mobile phone. He has the information that he needs at his fingertips. It is a smart way to check inventory before placing a same day order for a customer and finding out that the product is not in stock.
In the past this one little task would have involved calling someone in the company to check to stock levels. Many times this would have meant sending someone out to the warehouse in order to do an actual physical count of the inventory. Depending on the company and how well it is organized, a simple task like this could take hours to complete. This is why the perpetual system is used by plenty of companies. It saves time by always being consistently updated.
When it comes to the perpetual inventory system, there are few cons. The main complaint is that it requires a hefty investment on the front end. The software for this type of system is not cheap. However, most companies find the system very beneficial, once the software has been purchased and installed. Secondly, as stated throughout this article, the system has to be constantly updated. A lot of information has to be consistently feed into the system in order for it to work properly.
As you can see, the perpetual system has both pros and cons, but it is a very good inventory management system to have.