Inventory management is a crucial aspect of owning a retail business. To be successful, you need to have a deep understanding of your stock. What are people buying? What isn’t as popular? And, perhaps most importantly, what’s on your shelves right now?
Counting stock by hand is time-consuming, invites error, and decreases productivity. Not counting inventory at all may lead to overbuying, underselling, and profit loss.
And don’t forget the customer element — your hand-counted inventory may say you have something in stock when, in reality, you don’t.
Hello, dissatisfied customers.
A perpetual inventory management system provides updates on your stock in real time, meaning you’ll always know what’s available and your customers always come first. In this blog, we’ll explore perpetual inventory systems, explain how they work, tips for implementation, and more.
What Is Perpetual Inventory?
Perpetual inventory records inventory changes in real time without the need to count physical stock. This means your inventory will always show what’s in stock. Perpetual inventory is especially helpful in warehouses where employees can register inventory using point of sale (POS) systems and scanners.
Related Read: Inventory Reconciliation 101: How To Reconcile Inventory in 5 Steps
There are a few downsides to using perpetual inventory, including the risks of system breaches, breakages, and theft. If you don’t realize these things are happening, your counts will no longer be accurate.
However, using a modern point of sale system should offer blind drawer counts, custom codes to track inventory depletion and discrepancies, and granular employee permissions to combat retail shrinkage.
Related Read: ANSWERED: What Percentage of Shrink Is Caused by Employees?
Perpetual vs. Periodic Inventory System
What’s the difference between a perpetual inventory system and a periodic inventory system? The right solution for you depends on your company's size. Let’s take a look.
- A perpetual inventory system updates purchase and sales records constantly.
- Con: It may be more costly for smaller businesses.
- Pro: It’s better for large entities with multiple warehouses.
- Pro: Know what’s in your inventory at any time.
- Pro: Enough stock is always available.
- A periodic inventory system records updates to inventory and sales at scheduled times throughout the year.
- Con: This is a heavy lift for large stockpiles.
- Pro: Easy to implement and maintain, ideal for smaller businesses.
- Pro: It’s the cheaper route for small businesses.
- Con: This method doesn’t account for stock throughout the year — only at fixed times.
How Does a Perpetual Inventory System Work?
A perpetual inventory system is a method used by businesses to continuously track changes in inventory levels in real time. Here's how it works:
1. Initial setup: The system begins with an accurate starting inventory count. This count establishes a baseline for tracking inventory movements.
2. Transactions recording: Whenever there is a change in inventory, such as a purchase, sale, return, or transfer, the transaction is immediately recorded in the inventory system. This can be done manually, but automated processes and barcode scanners are best practices to prevent errors.
3. Real-time updates: As transactions occur, the perpetual inventory system updates the inventory records instantly. This ensures that the inventory levels reflected in the system are always current and accurate.
4. Inventory tracking: The system keeps track of not only the quantity of items but also other relevant information such as item descriptions, costs, locations, and expiration dates for perishable goods.
5. Inventory reconciliation: Periodically, the perpetual inventory system reconciles the recorded inventory levels with the physical inventory counts to identify any discrepancies. This reconciliation helps ensure the accuracy of inventory records and may involve conducting physical counts or audits.
6. Reporting: Perpetual inventory systems generate various reports based on the real-time data captured.
A perpetual inventory system will give you greater visibility and control over your inventory, allowing you to consistently make informed decisions about purchasing, pricing, and stocking levels.
Benefits of Using Perpetual Inventory
We mentioned some pros and cons of using perpetual inventory methods, but there are other amazing benefits, no matter your business size.
- Inventory transparency
- Enough stock is always available, particularly with popular items
- Visibility into purchasing habits
- Reduced risk of inventory error
- Optimized inventory for high demand and slower sales times
- Similar to cycle counts, there is no need to regularly close your warehouse to perform physical inventories
Bearing these benefits in mind, let’s dive into our top tips for how to implement a perpetual inventory system in your store.
Tips for Implementing a Perpetual Inventory System
Here are a few steps to get you started with perpetual inventory.
- Categorize your inventory into low, medium, and high popularity.
- Track key performance indicators (KPIs) for your stock, such as:
- Carrying costs
- Write-offs and write-downs
- Turnover
- Procurement status and tracking
- Establish a timeframe for reordering.
- Experiment with pricing and liquidating old stock.
- Use a POS system that records and updates your inventory in real time.
Related Read: Grocery Store Inventory Management Basics: 7 Tools and Techniques
Implement Perpetual Inventory With POS Nation
The right POS solution will help you manage inventory and alert you when there’s a problem or change in stock. Proper inventory management and inventory software can improve cash flow, decrease loss, and help you gain a loyal customer base. Plus, knowing what’s in your inventory at any given moment minimizes your risk of stockouts or overstocking.
Other features of POS Nation’s software include:
- Plug-and-play software: Choose from one of our prebuilt systems or create your own
- Customizable: Get the features and reports you need and none of the ones you don’t
- Dedicated customer support: We’re here to support you 24/7, even after onboarding
- Detailed inventory management reports: Get pre-built reports vital to retail success right out of the box or create your own
- Streamlined inventory management: Take the guesswork and manual input out of inventory counts with an automated tool
Schedule a demo to see how our POS system ensures you always have bestsellers in stock, reduces manual inventory errors, and increases customer satisfaction.
