Best Practices in Perpetual Inventory Management
Originally published on March 30, 2023 by Erhan Musaoglu, Updated on March 30, 2023
Perpetual inventory management has come to replace periodic inventory management methods due to its ability to streamline modern ecommerce operations and improve fulfillment accuracy. In fact, many industry experts agree that perpetual inventory systems are the only way to effectively keep up with the complex logistics of today’s direct-to-consumer (DTC) world.
Since ecommerce operations cannot afford to slow down, warehouse operators have turned to perpetual inventory management methods in order to track the inventory and transactions taking place throughout their supply chains. Unlike period inventory systems, which cannot provide live updates on stock or sales – perpetual inventory management offers real-time data that updates as inventory levels change and purchases occur.
Let’s discuss the top benefits of perpetual inventory management, as well as best practices for getting the most out of a perpetual inventory system.
In this blog, we will discuss:
The Benefits of Perpetual Inventory Management
As the name suggests, perpetual inventory management means that all the inventory and transactions that exist within your fulfillment network are being tracked at all times. This is hugely beneficial for high-volume ecommerce operations as it provides dependable insights into your exact inventory levels and operational margins. It keeps you abreast of all transactions taking place, and how the stock you are buying and selling is affecting inventory levels.
Perpetual inventory management benefits fulfillment operations by:
- Enhancing operational accuracy around inventory levels, stock availability, accounting data, and operational efficiency
- Unifying data through powerful integrations and data exchange
- Forecasting demand for informed decision making and better long-term business planning
- Improving customer satisfaction (allows you to set the correct expectations around item availability, estimated delivery times, and price fluctuations)
- Easing compliance efforts regarding taxes, regulatory reporting, SLAs, and contracts
For those of you not looking to take on another operating system, the good news is that top warehouse management systems (WMS) offer perpetual inventory management functionalities. To learn more about how perpetual inventory systems work, read Logiwa’s blogs on adopting a perpetual inventory system and real-time inventory management.
Best Practices for Perpetual Inventory Management
When it comes to ensuring a successful perpetual inventory management strategy, there are some universal best practices to keep in mind. Here are Logiwa’s top recommendations for using a perpetual inventory management approach.
Categorize Your Inventory
The way you organize your warehouse inventory inevitably affects whether or not your operations function smoothly—including when it comes to perpetual inventory management. To ensure you are successfully tracking your ever-changing inventory levels (and transactions), structure your warehouse with an efficient categorization system to simplify operations.
For example, categorizing your inventory items by demand value using an ABC analysis approach, will help restructure your facility to ensure faster-moving products (those in higher demand) are better situated in your facility. Since these items make up the majority of your transactions, optimizing your facility in this way improves perpetual inventory practices by ensuring frequently bought items are processed closer to packing stations, monitored more closely, and accessible for replenishment and counting operations. This helps with protecting against inventory shortages, as well as with forecasting demand and optimizing cost efficiency.
Because perpetual inventory involves ever-changing inventory levels and transactions, it is important that your business finds ways to validate the accuracy of your data. Whether products are inbound from a manufacturer, returned from a consumer, broken in your facility, or sold and ready to ship – perpetual inventory management still requires you to conduct physical inventory counts, risk assessments, and data validation.
If you are unsure of the best ways to accomplish this, continue to validate inventory data with sales records with physical counts or by adopting barcode or RFID tracking systems. These warehouse management technologies help ensure that processes like putaway, replenishment, and picking operations are completed accurately, and they help keep the physical elements of your warehouse in sync with the digital.
When it comes to perpetual inventory, smart data tracking gives you the visibility and control needed to improve inefficiencies and prevent costly mistakes for your fulfillment operations. By leveraging key performance indicators (KPIs) and metrics related to perpetual inventory, you are more equipped to make informed decisions related to carrying cost, turnover rates, the duration of inventory cycles, order and procurement statuses, and more.
In addition to being able to monitor business costs as they occur, perpetual inventory systems allow you to look ahead with demand forecasting. This is an effective way to control inventory and predict future trends because it uses the data you already have in your fulfillment system to identify upcoming opportunities for profitability.
Plan for Excess Inventory
Even the most accurate demand forecasting and robust perpetual inventory system cannot prevent the occurrence of excess, or “obsolete,” inventory. As a best practice, do not simply ignore or discard these items that are no longer considered sellable and/or profitable. Instead, seek ways to eliminate their occurrence in the first place or identify them as quickly as possible. The faster your system can flag these occurrences, the better.
Try accounting for changes in demand by formulating an approach for re-pricing items or liquidating products that need to be removed from your warehouse quickly. That way, you have one less item weighing down your profit margins and more room in your warehouse for the items that matter.
Perpetual Inventory Tracking in Warehouse Management Systems (WMS)
There are countless inventory management systems on the market to choose from, and many of them offer perpetual inventory tracking capabilities. However, high-volume ecommerce warehouses need more than just perpetual inventory functionalities – they need a solution that actively helps their operations improve efficiency.
Logiwa’s cloud WMS software is an all-in-one solution capable of perpetual inventory management, as well as end-to-end ecommerce order fulfillment. From smart inventory algorithms and warehouse automation rules, to our robust integrations and competitive analytics, our WMS solution helps B2B, DTC, and hybrid operations achieve fulfillment excellence while they grow.
Learn more about perpetual inventory tracking with Logiwa at: www.logiwa.com/request-a-demo.