Perpetual Inventory System: A Guide for Apparel Brands
As the name suggests, a perpetual inventory system is an inventory management system that continuously records the cost of goods sold and raw materials purchased in real time for every transaction.
To put it in another perspective, it’s an inventory management solution that perpetually counts your inventory as it moves in and out of your shelf and warehouse.
This continuous counting is achieved by capturing sales data from point-of-sales systems, thus allowing the perpetual system to update inventory levels in real time.
One of the major upsides of managing inventory with a perpetual system is that it can greatly minimize the occurrence of phantom inventory, lessens the need for physical inventory counting, and offers a high degree of accuracy.
In this post, we will dive deeper into the subject of perpetual systems and why apparel brands should integrate them into their inventory database. In addition, we will go over some of the benefits such systems offer to businesses and key features to look for when picking an inventory solution.
What is Perpetual Inventory System?
The perpetual inventory system is a method of tracking inventory in real-time, providing a constant and up-to-date record of stock levels. Unlike periodic inventory systems where physical counts are conducted at specific intervals, the perpetual system relies on technology like Point-of-Sale, barcode scanners, RFID (Radio-Frequency Identification) tags, and advanced software to keep an accurate account of inventory levels.
Utilizing a perpetual inventory system allows businesses to automate their inventory management, which in turn leads to greater operational efficiency and more accurate accounting records. Better accounting records mean better sales forecasting and a smoother inventory management process
While perpetual inventory systems are commonly used in large establishments and production outlets, small businesses can also use them. They also work well for apparel brands and fashion retailers of all sizes.
How Does A Perpetual Inventory System Work?
In a Perpetual Inventory System, every time a product is bought, sold, or moved, the changes are immediately reflected in the inventory records. Here’s a breakdown of how it works:
When new inventory is purchased, it is immediately recorded in the system. This includes details such as item description, quantity, cost, and any other relevant information.
For example, let’s say you sell women’s fashion products and a customer places an order for a dress. Once the product is picked from your warehouse using a scanner, that sale is instantly registered in your sales record and debited from your stock on hand.
When a customer purchases a product, the system subtracts the sold quantity from the inventory count. This real-time update helps businesses avoid selling products that are not actually in stock. It also enables businesses to keep accurate track of the cost of goods sold.
Perpetual inventory solutions are a two-way system. This means they don’t only automatically update stock levels as products move out but also do the same when they move in. And the process is very much the same.
Returns and Adjustments
If items are returned by customers or damaged, the system can accurately adjust the inventory count accordingly.
Monitoring Stock Levels
As each transaction occurs, the system maintains an accurate count of the remaining inventory. This allows businesses to quickly identify low-stock situations, plan for restocking in a timely manner, and minimize the need for physical inventory count.
Since the system constantly updates inventory levels, it contributes to accurate financial reporting by providing a clearer picture of a business’s assets and liabilities.
7 Ways Perpetual Inventory Systems Benefit Apparel Brands
Here are some of the benefits of running your business with perpetual inventory management software:
1. Real-time Visibility
One of the most significant advantages of this system is the ability to have real-time visibility into your inventory. This empowers businesses to make informed decisions and respond swiftly to changes in demand or supply.
2. Reduced Overstock and Understock
With accurate tracking, businesses can optimize their inventory levels, reducing the risk of overstocking (which ties up capital) or understocking (which can lead to missed sales opportunities).
3. Enhanced Customer Satisfaction
By ensuring products are in stock and ready to be shipped, businesses can meet customer demands promptly, leading to higher satisfaction levels.
4. Improved Accuracy
Manual counting errors and discrepancies are minimized, resulting in more accurate financial reporting and reduced losses due to stock discrepancies.
5. Effective Theft Prevention
Real-time tracking makes it easier to identify and prevent theft or unauthorized stock movement within the business premises.
6. Efficient Reordering
Businesses can set up automatic reorder points based on real-time data, streamlining the procurement process and preventing stockouts.
7. Reduces Operational Costs
By automating your inventory management processes, perpetual inventory systems can help you cut down on labor costs by reducing the number of hired hands you need—the result is higher profits.
Perpetual Inventory System vs. Periodic Inventory System
A perpetual inventory system might not always be the best choice for your business. This is because it can be expensive to implement and maintain. Plus, it can quickly get complex over time.
As such, you might need to consider an alternative inventory tracking method, namely the periodic inventory system. The core difference between both systems is the frequency of counting.
While a perpetual system focuses on recording stocks as soon as they come in or flow out, a periodic system records at stipulated time intervals. This makes it ideal for small businesses with a handful of inventory.
Other key differences between the systems are as follows:
While a perpetual system relies little on physical counting, it’s an entirely different story for the periodic system as they depend exclusively on it.
Cost of Goods Sold Calculation
Another way in which a perpetual inventory system differs from a periodic system is the manner in which the costs of goods sold (COGS) are calculated. For the former, calculations are made in a continuous flow as inventory levels change dynamically, whereas, for the latter, calculations are made at the end of an accounting period.
Key Features to Look For in a Perpetual Inventory System
How do you know if a perpetual inventory system is good for your business? One easy way is to check if the software has the following features:
1. Enterprise Resource Planning (ERP) Module
You need a software that goes beyond just tracking inventory. You need a system that is robust enough to manage every aspect of your business, including order management, product development, returns management, warehouse management, and many more.
This is where an apparel ERP solution comes in handy. An ERP is capable of managing all the processes listed above and even more.
2. Easy to Use
What’s the point of using a system with a steep learning curve and difficult to learn? So when picking a system, be sure it’s very easy to use.
3. Integrates with third-party solutions
Seamless third-party integration is another important feature to check for when looking to pick an inventory management solution. It should be able to integrate well with your POS, scanners, and warehouse management software.
Picking the right inventory management solution can be a major game-changer for your business. You need a system that is easy to use, yet powerful enough to deliver your business goals.
This is why you need Uphance. With Uphance, you can conveniently manage your inventory, warehouse operation, order fulfillment, customer relationships, and many more.
Sign up for a free trial to take Uphance for a spin.