As you are here after googling for inventory management solutions, you most probably already have an idea about the inventory management basics. In this article, we will be tackling more about the different perpetual inventory approaches to see if an inventory system is truly what you need for your business.
Inventory System – Defined
An inventory system, or also known as an inventory management system, is an automated process of tracking item inventories throughout the entirety of the supply chain with purchasing as the start point and sales or disposal as the endpoint. It looks over and ensures that your inventories are managed properly which is essential for your business’s sustaining profitability.
How companies from the industrial, manufacturing, and retail industries differ in terms of stock management and this depends on their requirements, size, and nature. Let us take John for example.
John finally made his capital work and put up a small grocery store. John had already reached various potential suppliers for the goods and items depending on categories. All John had was a team of professionals manning the treasury, supplies, and sales areas of the store.
Since he initially invested in only two computer stations, John taught two of his trusted men about Excel spreadsheet creation, with the hopes of streamlining the inventory recording process. What his men basically did was they manually locate the items in various excel files and updated them whenever stocks would go in and out of the store.
While this may have involved the use of a computer, this process is still considered a manual approach and a simple technical glitch in these computers or corruption of files can already throw the crucial records away. Not to mention, how the process still eats up a huge portion of John’s men’s time never helped improve his inventory management process and overall profitability.
John’s situation is an example of why a digital solution as an inventory system is necessary.
How Is An Inventory System Necessary?
Any process that involves stock handling definitely requires an inventory system to track and manage stocks accurately and reliably. Managing inventories without it is just like an ad-hoc approach and sooner or later, the business will be facing challenges or be caught in overstocking or understocking situations. This can mean loss of income for the part of retail businesses or production downtime for manufacturing and industrial firms. Needless to say, an inefficient, inaccurate, and unreliable inventory management can definitely draw customers away and put the business on the brink.
Investing in an inventory system is a lot wiser than sticking with the manual management approach. Nowadays, there are a lot of different systems you can adopt as you switch to the digitization and it can range from a simple, straight-to-the-point approach to comprehensive, sophisticated solutions.
Periodic And Perpetual Inventory Systems – Compared
When it comes to managing inventories, there are two fundamental approaches as per the books: periodic inventory approach and perpetual inventory approach.
Periodic inventory approach, from what its name suggests, manages stock mainly according to stock taking on a periodic basis. The inventory items are accounted for periodically, i.e. 3 to 6 months on average, as a means of upholding stock accuracy and matching sales figures with stock levels. This approach faces massive risks of data losses that can open opportunities for theft and disable proper inventory decision-making.
Meanwhile, a perpetual inventory approach tracks inventory levels on a real-time basis, i.e. the points of receipt, sales, or returns. This approach aims to deliver the most real-time inventory figures without any dependence on stock takes for accuracy.
Businesses have been following the perpetual inventory approach probably without them knowing. These are the ways how:
The Manual – Spreadsheet Inventory Management
A
lot of businesses especially those that are just getting started tend to follow
John’s approach and start off using spreadsheet files to monitor inventories on
a basic scale. However, as previously mentioned, a lot of downsides are present
in this kind of system and most of these downsides are related to human-errors
and inefficiency. The consequences of this in terms of data accuracy and
flexibility are often difficult to pass by.
On
the upside, spreadsheet management is cheap, easy to use, and can already
deliver for businesses with simple requirements. However, huge and crucial
problems can arise once the spreadsheet files get corrupted or the business
expands and gains more data to maintain.
Basic Inventory System
A
lot of cloud-based inventory systems feature basic inventory management
functionalities. They may not be that comprehensive but they can already
address a lot of problems pressed in the manual and spreadsheet approach. The
pros? They are affordable but featured enough to streamline your inventory
management process. The inventory data are highly available and accessible for
authorized users and this alone can already do wonders for decision-making that
leads towards enhancing business profitability.
Dedicated Inventory System
This is the second-highest form of inventory management solution in the market today. The developers of dedicated inventory systems make sure that the systems are developed perfectly in accordance with the client’s requirements and in line with the client’s current inventory setup. These are cloud-based inventory apps nowadays that are sync-ready with other software.
On the upside, a dedicated inventory system already delivers what a good inventory system is supposed to deliver plus an enhanced integration capability. That said, this type is truly flexible and scalable. However, some software providers do not cover the setup of these software. Hence, technical support might have to be an additional expense.
Enterprise Inventory System
This
one is probably the highest, thus the most expensive variety of an inventory
system as it also comes with other digital solutions that the entire enterprise
may need. The modules under this type are usually integrated which is
additionally convenient on the part of the managers and business owners who
want to get a bird’s eye view of the business’s overall performance. The only
downside, however, is its price and the ongoing expense for upgrades and
maintenance which the system provider might not cover.
