What is a Perpetual Inventory System and How Does It Work?

Juggling customer demand while keeping storage expenses under control can be a constant challenge. The key to getting it right? A perpetual inventory system that offers real-time visibility and flexibility. 

Warehouses and e-commerce businesses have increasingly adopted the perpetual inventory method for real-time accuracy. For fast-growing e-commerce brands managing multiple channels and high-volume sales, a robust perpetual inventory system is a game-changer. It helps to eliminate stock discrepancies and other costly errors without waiting for month-end or quarter-end counts.

In this article, we’ll break down what a perpetual inventory system is and how it works to keep your stock under control, helping you optimize inventory operations across channels and maximize sales.

Perpetual Inventory System Meaning 

A perpetual inventory system is an accounting method that logs every change in your stock as it happens—unlike periodic systems that rely on end-of-period counts. When an item sells, it’s credited to your inventory balance sheet, letting you see how much profit you’re making after covering the cost of goods sold (COGS). 

By capturing each transaction instantly—through barcode scanners or point-of-sale (POS) systems—you always know what’s on hand without relying on scheduled physical counts. This approach helps you avoid phantom inventory (where you think you have more than you do) and reduces errors from manual data entry.

How Does a Perpetual Inventory System Work?

A perpetual inventory system tracks every step of your order-to-cash cycle. That cycle includes placing orders with suppliers, receiving goods in your warehouse, selling items across your channels, and ultimately fulfilling orders. 

Here’s a closer look at how it all comes together:

1. Procurement 

Your perpetual inventory system can provide prompts to restock before you run out, optimizing your inventory management processes. It does this by keeping tabs on inventory levels, sales trends, COGS, and profit from your sales channels and warehouse management system (WMS).

2. Inbound Receiving

When new shipments arrive, barcode scans record each package and its contents the moment they’re offloaded. This bulk update instantly feeds into your stock records, ensuring you always have an accurate count of what just landed in your warehouse or distribution center.

3. Point of Sale

Every time a customer pays (online, in-store, or through a marketplace) your system deducts those items from your available stock right away. This real-time adjustment avoids the dreaded “sold-out after purchase” scenario and keeps your sales channels aligned with what’s actually on hand.

Advantages of Perpetual Inventory Systems

Let’s explore the advantages of a perpetual inventory system to understand why many e-commerce businesses are embracing this technology solution to optimize their inventory management.

• Real-time inventory visibility

A perpetual system continuously updates your inventory as sales and purchases occur. This ensures your stock counts are always accurate, helping you identify and eliminate bottlenecks in your supply chain. With up-to-date product availability across all sales channels, you can fulfill orders faster, meet customer expectations for quick delivery, and boost repeat business.

• Centralized inventory management for multiple locations

If you have warehouses in different cities or countries, a perpetual system lets you manage all locations from one dashboard. Moving stock between a Singapore warehouse and a Jakarta one is seamless, ensuring each site has what it needs. By leveraging centralized and automated solutions. The company uses Anchanto solutions to centralize inventory data for efficient order and stock level management, product listing across marketplaces, stock projection and planning. 

• More accurate demand forecasting

By tracking customer buying patterns and seasonal trends in real time, a perpetual inventory system will help you predict future demand with greater accuracy. This means you can create smarter stocking plans that avoid both overstocking and stockouts, minimizing losses and ensuring you have the right products available during peak seasons.

• Easier financial statement planning

With inventory values automatically updated, preparing accurate financial statements becomes much simpler. This automation reduces the time and effort needed for accounting tasks and minimises the risk of errors, allowing you to focus more on growing your business instead of getting bogged down in paperwork

• Operational efficiency

Perpetual inventory systems automate many manual processes, such as tracking stock levels and managing replenishments. This also reduces the need for extensive physical inventory counts and lower labor costs, saving your business time and money.

Perpetual vs. Periodic Inventory Method

Perpetual inventory is like maintaining a daily journal where every event is recorded as it happens. On the flip side, periodic inventory is more like writing a monthly summary, where you only update your records at specific intervals. This can lead to gaps in your inventory visibility and potential discrepancies between your actual stock and what your records show. 

Let’s dive into the differences between these two inventory methods:

Setting Up a Perpetual Inventory System

Getting your perpetual inventory system up and running involves several key steps to ensure every transaction is tracked from the moment a product hits your shelves until it’s sold. 

Here’s a breakdown of the process:

1. POS and barcode integration

• Set up point-of-sale (POS) terminals at your checkout, whether online or in-store.
• Integrate barcode scanners so every item is scanned and recorded instantly.
• Ensure these devices feed data directly into your central inventory system for immediate updates. This real-time data flow will significantly improve accuracy and reduce human error.
  

2. Setting up an inventory management software

• Choose a software solution like Anchanto Inventory Management that integrates seamlessly with all your sales channels and even links to your ERP systems via APIs. 
• Configure workflows within the software for receiving shipments, processing orders, and managing returns.
• Set up automatic adjustments so every sale, return, or stock transfer updates your inventory in real time.
• This integration not only automates updates like reorder points and cost-of-goods sold adjustments but also provides a unified dashboard for managing your entire inventory ecosystem.

3. System configuration for accuracy

• Define reorder points and set alerts for low stock levels to keep your inventory balanced.
• Automate cost accounting so that each sale updates your cost of goods sold (COGS) immediately.
• Fine-tune the system’s rules to reflect your specific operational needs.

4. Ongoing monitoring and optimization

• Utilize your software’s dashboards and predictive analytics to monitor trends, spot bottlenecks, and forecast demand accurately.
• Implement cycle counts—where you audit small segments of your inventory frequently—to verify that electronic records match what’s actually on your shelves.
• Regularly update both your hardware and software to keep pace with business growth.

Following these steps will help you create a perpetual inventory system that drives more accurate decision-making and builds the foundation for a thriving e-commerce business.

How Anchanto’s Software Solution Can Transform Your Inventory Management 

A perpetual inventory system is a great choice for fast-growing e-commerce businesses looking to centralize inventory management, optimize stock levels, and much more. 

Businesses have reported a 50% improvement in workflow efficiency after implementing Anchanto’s software solutions to manage inventory automatically, reduce handling costs, and increase cash flow. 

Anchanto Inventory Management features built-in perpetual inventory management capabilities, providing real-time visibility and stronger stock control across your entire inventory ecosystem. 

Through a centralized dashboard, e-commerce brands will achieve real-time visibility into inventory levels and track SKUs as they are received, stowed, picked, packed, and shipped to customers. In addition to a lower likelihood of discrepancies, the automation of backend operations, centralization of multi-channel processes, and efficient management of large inventory volumes will further add value to your business.

Get in touch with our experts today to see how Anchanto’s solutions can transform your e-commerce inventory management for greater operational flexibility. 

FAQs 

1. What is a perpetual inventory system?

A perpetual inventory system is a method of continuously tracking stock levels by updating records in real time whenever items are bought or sold. Instead of relying on scheduled physical counts, it captures every incoming and outgoing transaction instantly—usually with the help of barcode scanners, point-of-sale systems, or other automated technology.

2. What is an example of a perpetual inventory record?

Imagine you run an e-commerce store selling industrial footwear. When a new shipment of 100 steel toe boots arrives, your perpetual inventory system logs that stock in real time. As each pair of boots sells—say, you get ten orders overnight—it automatically deducts ten from your available count. If a customer returns 20 pairs, the system adds that unit back. Because every transaction is recorded the moment it happens, your stock levels are always current, without having to wait for a scheduled manual count.

3. What are the advantages of a perpetual inventory system?

A perpetual inventory system provides real-time accuracy, simplifies multi-location management, and enables more informed demand forecasting by constantly updating stock levels. However, these systems may not detect losses from theft, spoilage, or damage. Periodic physical counts might still be necessary to verify data and address any discrepancies.

4. Who should use a perpetual inventory system?

• You have multiple sales channels (like your own website, Lazada, and Shopee).
• You manage multiple warehouses or store locations.
• You handle high sales volumes and need accurate, real-time stock data.
• You want to minimize the risk of stockouts and overstocking.

References:

[1] Investopedia.com – Perpetual Inventory System: Definition, Pros & Cons, and Examples

[2] Corporatefinanceinstitute.com – Perpetual Inventory System

[3] Harvard Business Review (hbr.org) – Using Technology to Improve Supply-Chain Resilience