Inventory management plays an important role in economic activity. In any organization, especially manufacturing and trading organizations, if inventory is not managed properly, it can lead to business losses. “Perpetual Inventory Method” is one of the various methods of inventory management.
What is the continuous inventory method?
Perpetual inventory method is a system in which arrival and delivery accounts of each product are constantly updated. After every purchase, sale and transfer, the information is stored in the system and it directly affects the amount of inventory. This method provides real time information on inventory, which helps in business decision making.
Process
Computerized systems are generally used in perpetual inventory method. When a product arrives at the store or is delivered from the store, the information on each transaction is immediately updated in the database. This method collects data using barcode scanners, RFID tags and other digital tools. As a result, company managers always get updated information about inventory.
Benefits
- Real time information: In continuous inventory system, the quantity of each stock is available in real time. This information helps the company to make quick decisions.
- Accurate accounting: As every transaction is recorded accurately, accounting risk is reduced and errors are prevented.
- Business Improvement: With knowledge of proper inventory in daily inventory system, chances of overstocking or accumulation of unnecessary inventory is reduced, resulting in increased business activity.
- Computerized System: By storing and managing digital information, the company gets rid of manual work and can enjoy the benefits of automation.
Challenges
- High Cost: Installing the necessary hardware and software in a perpetual inventory method can be costly. This can be especially challenging for small businesses.
- Dependence on Technology: This approach is completely dependent on technology. Technical errors or software problems may cause interruptions in data retrieval.
- Training required: Staff need to be trained to use this method, which is a challenge in terms of both time and cost.
Perpetual inventory method is a modern and effective inventory management method. Although there may be some challenges in the beginning, in the long run it provides a company with accurate and quick information about inventory, which is crucial for business success.
More Resources
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