Use a Perpetual Inventory System for Your Ecommerce
The perpetual inventory system is one of the most important types of inventory systems, which is a method for calculating inventory in which the sale or purchase of inventory is recorded immediately through the use of computerized point-of-sale systems or the entry of orders through business asset management programs, and the advantage of the perpetual inventory system is that it provides a detailed view of changes The incident in stock, with an immediate report on the amount of stock in the warehouse, which accurately reflects the level of available items, all of which positively affects work, productivity, speed of order fulfillment, and thus customer satisfaction, and in this article we will talk about the perpetual inventory system and its advantages and how it works.
What is Perpetual Inventory?
Before talking about the perpetual inventory system, we will first need to know the concept of perpetual inventory, which means:
It is that type of inventory that is continuous on a daily, monthly or annual basis, as it is a process that tracks the real assets of the institution on a permanent basis.
What is a perpetual inventory system?
Perpetual Inventory System is the system whereby every movement that takes place on a continuous basis on the stock of withdrawing or adding, goods in process and cost of goods sold is processed on a daily basis.
The perpetual inventory system allows real-time tracking of sales and inventory levels of individual items, helping to avoid shortages.
How does the perpetual inventory system work?
As for how the perpetual inventory system works, it basically works by updating the inventory base permanently. This method is one of the most accurate and effective ways to calculate inventory.
The following is how the perpetual inventory system works:
- Updating stock levels through point of sale systems. After an item is sold, the stock management systems associated with the point of sale system deducts that item from the total stock and records the process.
- Update the cost of the goods that have been sold, and this process is done when any item is sold.
- Frequently adjusting reorder points, based on historical data, in order to maintain inventory at an optimum level at all times.
- Create purchase orders automatically, when an item reaches its reorder point, and then create this order and send it to the same supplier automatically without any human intervention.
- The last step in the mechanism of the perpetual inventory system is to check the received products in stock, where the products are checked through warehouse management programs, and all these updates appear in the inventory management dashboard and displayed on all sales channels.
What are the advantages of a perpetual inventory system?
There are a number of advantages that the perpetual inventory system provides to users, and the following are the most important of those advantages:
- Provide managers with relevant statistics on the company’s status and inventory in a timely manner.
- Provide all information about the amount of cost of goods sold and the balance of the inventory account at any time, and this information is very important to improve purchasing policy and prepare short-term financial statements.
- Maintain greater control over physical inventories by comparing actual balance with ledger records.
- Detect without delay any problem before it becomes giant such as theft, damage or leakage of inventory.
- Prevent out of stock situations or a shortage of stock that the product is out of stock.
- Provide management with a more accurate understanding of customer preferences.
- Allow management to centralize the inventory management software to multiple locations.
- Provide greater accuracy of inventory as each item is recorded separately in the general ledger.
- Reduce physical inventories.
When Would You Use a Perpetual Inventory System?
As for the reason why companies use the system, it is in fact due to the advantages of this system for companies, especially e-commerce companies, this system provides an accurate view and immediate analysis of inventory levels, away from the manual processes of the inventory system, because the perpetual inventory system is available It has automation system, which saves time and costs significantly.
Is It Necessary to Take a Physical Inventory When Using the Perpetual Inventory System?
In the end, we would like to point out the importance of periodically conducting a physical inventory, in order to test the accuracy of these permanent records, and the physical inventory will help in identifying cases of inventory shortage or shrinkage.
