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How to Use a Perpetual Inventory System for Your E-commerce Business

How to Use a Perpetual Inventory System for Your E-commerce Business

Efficient inventory management is crucial to the success of any E-commerce business. Managing stock levels in real time ensures that you always have the right products available to meet demand, without overpaying for storage or losing sales due to stockouts. A Perpetual Inventory System is one of the most effective ways to manage inventory continuously. It provides real-time tracking, which helps ecommerce businesses maintain accurate inventory records and respond quickly to changing customer needs.

In this guide, we’ll explore what a perpetual inventory system is, how it works, and how it can benefit your E-commerce business.

What is a Perpetual Inventory System?

A perpetual inventory system is a method of continuously tracking inventory levels. Every purchase, sale, or return is automatically recorded in real-time, giving businesses an up-to-date view of their stock. Unlike traditional inventory systems that rely on periodic physical counts, perpetual systems integrate with digital tools such as barcode scanners, RFID tags, and point-of-sale (POS) systems to instantly update inventory records.

For E-commerce businesses, this means having precise data at all times, which is essential for avoiding stockouts, optimizing storage costs, and ensuring that customers can always find the products they’re looking for.

Perpetual vs. Periodic Inventory Systems

E-commerce businesses typically choose between two main types of inventory tracking methods: perpetual and periodic inventory systems. Here’s a breakdown of the differences:

Perpetual Inventory System

  • Real-time updates: Inventory levels are adjusted automatically every time a sale, purchase, or return is made.
  • Instant visibility: You always know how much stock is available, without needing to perform frequent manual checks.
  • Automated processes: Inventory adjustments, reorder points, and purchase orders are automated, reducing labour costs and human error.
  • Integration with systems: Perpetual inventory systems integrate seamlessly with your POS, warehouse management, and E-commerce platforms.

Periodic Inventory System

  • Manual updates: Inventory is only updated periodically, usually through physical counts at the end of an accounting period.
  • Infrequent visibility: Businesses only get an updated view of inventory after each count, which can lead to discrepancies between book inventory and actual stock levels.
  • Higher risk of errors: With less frequent updates, there is a greater risk of stockouts, overstocking, or inventory mismanagement.

While periodic systems may work for smaller businesses with less frequent transactions, E-commerce businesses that manage high inventory turnover benefit greatly from the automation and accuracy of a perpetual inventory system.

How a Perpetual Inventory System Works

A perpetual inventory system tracks every transaction in real-time, ensuring that inventory counts are always accurate and up to date. Here’s a closer look at how it works:

Real-Time Updates with Sales and Purchases

Whenever a product is sold or purchased, the perpetual inventory system automatically adjusts the stock levels. For example, if you sell five units of a product through your online store, the system will immediately decrease the inventory count by five. Similarly, when new stock arrives in your warehouse and is scanned into the system, the inventory count increases instantly.

This real-time tracking allows you to stay on top of inventory levels and ensures that your stock data is always accurate.

Automated Reorder Points

Perpetual inventory systems use historical sales data to calculate optimal reorder points. This means the system can automatically trigger a reorder when stock levels fall below a certain threshold. For example, if sales data shows that you frequently sell out of a popular item when it drops below 50 units, the system can automatically place an order for more stock once you hit that level.

By automating reorder points, E-commerce businesses can reduce the risk of stockouts and ensure they always have enough inventory to meet customer demand.

Integration with POS and e-Commerce platforms

Perpetual inventory systems integrate directly with your point-of-sale (POS) system, E-commerce platform, and warehouse management system (WMS). This seamless integration allows inventory levels to be updated across all sales channels instantly. Whether a customer buys an item online or in a physical store, the system updates the inventory count in real time, providing a unified view of your stock.

5 Advantages of a Perpetual Inventory System

Perpetual inventory systems offer a range of benefits for E-commerce businesses, particularly those managing large volumes of stock or multiple sales channels. Here are five key advantages of using a perpetual inventory system:

1. Real-Time Inventory Tracking

One of the biggest advantages of a perpetual inventory system is the ability to track inventory in real-time. This means that you always have up-to-date information on your stock levels, which is crucial for preventing stockouts and overstocking. For E-commerce businesses, this translates to better inventory control, ensuring products are always available for customers while avoiding excess inventory that can lead to higher storage costs.

With real-time tracking, you no longer need to rely on periodic manual counts to know how much stock you have, as every transaction is recorded and updated instantly.

2. Reduced Labor Costs and Human Error

Traditional inventory systems often require manual input and physical stock counts, which can be labour-intensive and prone to human error. A perpetual inventory system automates these tasks, saving your team valuable time and reducing the likelihood of mistakes in stock tracking. By minimizing manual intervention, businesses can lower labour costs while maintaining accurate inventory data.

Automation also eliminates errors related to inventory miscounts, such as accidentally overselling a product that’s out of stock or ordering more inventory than you actually need.

3. More Accurate Demand Forecasting

A perpetual inventory system provides a wealth of historical sales data, which can be used to forecast demand more accurately. By analyzing patterns in sales and customer behaviour, businesses can predict future inventory needs and adjust stock levels accordingly.

For instance, if your business sees a spike in demand for certain products during the holiday season, the system can automatically adjust reorder points based on previous years’ sales data. This level of foresight helps ensure that you have enough inventory on hand when it’s needed most, reducing the risk of stockouts during peak shopping periods.

4. Better Financial Accuracy

Perpetual inventory systems not only track stock levels but also provide more accurate financial data by continuously updating key metrics like Cost of Goods Sold (COGS) and inventory value. This real-time tracking ensures that your financial statements reflect the most accurate information about your inventory at any given time, which is particularly important for accounting and tax reporting.

For example, as inventory is sold or received, the system automatically updates the corresponding financial entries, improving the accuracy of your income statement and balance sheet.

5. Faster Response to Market Changes

With real-time data at your fingertips, perpetual inventory systems allow ecommerce businesses to respond quickly to changes in market demand. If you notice a sudden increase in sales for a particular item, the system can quickly trigger a reorder before you run out of stock. Conversely, if certain products are selling slower than expected, you can adjust reorder points or put surplus stock on sale to free up storage space.

This ability to adapt quickly helps businesses stay agile, reducing the risk of lost sales or holding excess stock that ties up capital.

Best Practices for Using a Perpetual Inventory System

To get the most out of a perpetual inventory system, businesses need to implement best practices that ensure efficiency and accuracy. Here are some essential strategies to optimize your inventory management using a perpetual system:

1. Use RFID Tags and Barcoding for Real-Time Tracking

To ensure that your perpetual inventory system updates accurately, it’s crucial to use RFID tags or barcode scanners to track products. These tools allow you to automatically log every product entering or leaving your warehouse, minimizing manual input and reducing the risk of errors. Barcodes are a cost-effective option for smaller businesses, while RFID tags offer even more automation and precision, making them ideal for high-volume operations.

By implementing these technologies, ecommerce businesses can streamline inventory processes and maintain real-time visibility across all products.

2. Integrate with a Warehouse Management System (WMS)

For ecommerce businesses that manage their own warehouses, integrating a Warehouse Management System (WMS) with your perpetual inventory system can significantly improve accuracy and efficiency. A WMS works in tandem with your perpetual inventory system to track stock movements, monitor inventory levels, and ensure that orders are picked, packed, and shipped accurately.

This integration allows businesses to avoid discrepancies between warehouse operations and inventory data, ensuring that the perpetual system reflects actual stock levels at all times.

3. Set Accurate Reorder Points Based on Sales Data

A key feature of perpetual inventory systems is the ability to set automated reorder points. To optimize inventory control, businesses should analyze historical sales data to establish accurate reorder levels. Setting reorder points too low can result in stockouts while setting them too high can lead to overstocking.

By using the data generated by your perpetual system, you can adjust reorder points based on trends, seasonality, and sales cycles to keep inventory at optimal levels. For instance, if you know certain products sell faster during peak seasons, you can increase reorder thresholds to prevent stockouts during high-demand periods.


How Perpetual Inventory Systems Help Ecommerce Businesses Grow

A perpetual inventory system is more than just a tool for managing stock—it’s a key driver of business growth. By providing accurate, real-time insights into inventory levels, perpetual systems empower e-Commerce businesses to make data-driven decisions that enhance operational efficiency and customer satisfaction.

Streamlining Inventory Management

With automated tracking and real-time data, perpetual inventory systems eliminate many of the manual tasks associated with inventory management. This frees up valuable time and resources, allowing businesses to focus on scaling their operations, expanding product lines, and improving customer service.

Reducing Costs and Improving Profit Margins

By optimizing inventory levels, businesses can reduce storage costs and minimize the risk of overstocking. This leads to better cash flow management and higher profit margins. Additionally, perpetual inventory systems help avoid the costs associated with stockouts, such as lost sales and dissatisfied customers.

Enhancing Customer Experience

Maintaining accurate inventory levels ensures that products are always available when customers need them. This leads to faster order fulfillment and fewer delays, resulting in higher customer satisfaction and repeat business.


Conclusion

A perpetual inventory system offers ecommerce businesses a powerful solution for managing stock in real-time, optimizing reorder points, and improving overall efficiency. By automating key processes and providing real-time insights, businesses can reduce labour costs, improve demand forecasting, and enhance customer satisfaction.

For growing ecommerce businesses, investing in a perpetual inventory system is a crucial step toward scaling operations and maintaining profitability. Implementing best practices, such as integrating RFID tags and using data-driven reorder points, will help you get the most out of this inventory management method, ensuring long-term success.

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