How does a perpetual inventory system work

Once again, it’s that time of year? The time to take that long and tedious inventory? Keeping track of your inventory with the help of a periodic inventory system is only one option. Why not try a perpetual inventory system as well? Couldn’t we have one that keeps itself up-to-date without requiring a lot of manual updating?

Well, if you haven’t considered which amazon inventory management system you should be using, then there is no need to worry; contact us at Inventooly. We can help you in this regard. 

Now let’s see how the perpetual system works and what advantages it bears for your business.  

What Is Perpetual Inventory?

The concept of perpetual inventory means that a business keeps track of inventory changes in real-time, without requiring physical inventories, so that the book inventory accurately reflects real stock. The inventory of warehouses is tracked using point-of-sale (POS) systems and scanners.

In warehouses and retail stores alike, perpetual inventory methods are becoming more common. Overstatements, also known as phantom inventories, and missing inventories can be minimized by perpetually maintaining inventories. 

What Is a Perpetual Inventory System?

The concept of perpetual inventory listing with amazon warehouse system refers to the continual estimation of inventory using electronic records. In this system, a physical count provides the baseline for updating based on the arrival of new shipments and purchases.

The inventory count can be updated in real-time, thanks to inventory management software and processes. The barcode scanners are often used by employees to record sales, purchases, and returns instantly. Throughout the process, updates to the database are constantly occurring in order to track any change that happens. Having a perpetual updating system differentiates the system from a periodic approach due to its automatic updating.

As inventory management software has evolved and become more powerful and practical, many companies are turning to perpetual inventory for many of their business needs. Also, cloud-based inventory management systems are often real-time, which is a critical aspect of perpetual inventory systems.

In what way does a perpetual inventory system work?

Whether your business is large or small, perpetual inventory is a sensible choice. Let’s see how it works.

  • The inventories are sold

At the point-of-sale (POS), a member of a team scans an item purchased by the customer. Once your account has been updated, the POS system deducts the item from the inventory journal. If your transaction is online, the deduction is automatic.

  • A real-time update of COGS (Cost of goods sold)

In addition to the Last In, First-Out (LIFO) accounting method, first in, first out (FIFO) accounting can also be used to calculate COGS. LIFO accounting costs items in order of their most recent purchase price. FIFO accounting costs items based on their oldest price. Once a sold or received item is recorded, the COGS of the item is automatically updated.

  • Reordering points automatically

Perpetual inventory systems become better with time once you get started using them. The reorder points are constantly adjusted to optimize stock levels as more historical data is available.

  • Generate purchase orders

Your system automatically generates a purchase order when you reach the calculated reorder point for an item you carry. You and your team can feel confident that there will never be an issue regarding inventory shortages since the order is sent to your suppliers.

  • Scans are performed on receivables

After your suppliers receive your purchase orders, they will ship them to your warehouse. After receiving the order and scanning the items, the warehouse management system will credit your inventory journal. Items can now be sold, returned, sent back, transferred, and so on.

  • There is no beginning or end

After that, the cycle continues. As your system collects more data, the automation process becomes more efficient.

Perpetual inventory has several advantages 

Some primary advantages of perpetual inventory are as follows:

  • Data can be viewed in real-time

You will have the most accurate inventory information with an advanced inventory management system. And you can access it in real-time. Using your fulfillment centers, you can track sales orders being processed in your warehouse. Returns are processed almost instantly, so stock suitable for resale is available almost immediately following the process.

  • Helps to avoid stock-outs by increasing inventory accuracy

The accuracy of your inventory will improve when you use a perpetual inventory system. Customers will feel less confused and disappointed when using a perpetual inventory system. The Replenishment report keeps you up to date on all your products with this inventory management solution. Purchase orders can be created in just a few clicks. Your most popular items will always be on hand, and a sale will never pass you by. As a result, your accounting records will contain more accurate inventory numbers.

  • You save money by using it 

The perpetual inventory listing allows for improved inventory control through data-driven inventory demand planning. You can easily view inventory levels, inventory on hand, inventory costs, and items on purchase in the app dashboard. Notifications in advance will inform you of necessary reorders and overstocked items. 

Stocking the most important items and minimizing overstocking will be assisted by various forecasting metrics, such as seasonality and trends. As a result, your business has less inventory and more cash available to spend elsewhere.

Best practices for a perpetual inventory system

Sort and categorize your inventory

Ensure that you listen to the information you receive in the early phases of implementing your new perpetual inventory system. There should be a division between bestsellers, average sellers, and low-demand items. Thus, you will be able to make the right investments and discover optimal reorder points.

Ensure you aren’t overstocking and understocking.

Investing in slow-moving items instead of moneymakers will lead to your losing money and wasting warehouse space. 

Your products stocking out can mean the loss of a sale or damage to the relationship with your customers. As soon as possible, maintain inventory balance using your real-time tracking. The most effective pricing and marketing strategies can be achieved with accurate inventory details.

The stock should be rotated

If you have a medium or slow-moving product line, you should remove the oldest items first. When it comes to packing orders, all staff should be advised to pack the oldest items first. You can ensure this is done by tracking serial numbers and LOT numbers. In this instance, FIFO (first in, first out) should be selected over LIFO (last in, last out).


In order to be successful in business, controlling inventory properly is crucial, and the perpetual inventory method provides insight into your stock. The decision-makers know that no matter which method of inventory control they choose, they will have to put the right tools in place so that they can effectively manage their inventory. With Inventooly, you can track inventory in multiple locations, determine to reorder points, keep track of safety stocks, and manage cycle counts.

Charly bell

Hi there! I'm Charly Bell, a writer and explorer. I love sharing cool stuff about travel, health, business, finance, and much more in general topics. My aim is to provide informational articles so that maximum people will learn and educate themselves. I'm all about making it interesting and easy to understand. Join me on this journey, and let's explore together!

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