Doing full inventory counts at the end of the year can be costly, both in labor and missed business. By ditching your full inventory counts and switching to cycle counting, you are able to keep a better eye on what is going on in your warehouse without having to stop business.
When talking about inventory counts, there are two different types, periodic inventory and perpetual inventory.
Periodic Inventory
A periodic inventory count is when inventory is only counted periodically, usually at the end of the year. Many times a periodic inventory is done using a spreadsheet and data entry. It is easy to see how doing inventory this way may lead to a huge margin of error. There is the opportunity for items to be counted twice, or not counted at all, as well as items being categorized wrong. It is sometimes hard for the human eye to distinguish between red and maroon. It may be crucial to the inventory system to have those two counted as separate entries on the spread sheet.
When working in a periodic inventory environment, it is easy to see that there is opportunity for a more efficient system, this is in the form of perpetual inventory.
Perpetual Inventory
A perpetual inventory system is when a company takes physical counts continuously either through a POS system or a warehouse management system. With this type of system, companies are able to know exactly what inventory they have within the warehouse or store, increasing customer service, and in turn, grow their business.
There are a couple ways of obtaining a perpetual inventory system. The first is through a POS system. This system is set up to be able to take each item as it is paid for by a customer, keeping a running total of what’s been sold that can be counted against what product was brought into the store. The second means of obtaining perpetual inventory is through a warehouse management system, using barcodes and barcode scanner. With this system, products are scanned as they enter the warehouse and then scanned again once they leave, ensuring there is always an accurate account of inventory.
Cost Savings
There are several benefits, besides proper inventory counts, to choosing a perpetual inventory system. These include reduced overtime, reduced overhead, and never having to stop business to count.
When periodic inventory counts are taken, usually at the end of the year, around the holiday season, business are required to keep staff on after their shifts or on the weekend. This can become costly as many of these hours are in overtime. By having an automated system, and counting inventory as you do business, you eliminate the need to keep staff, and pay their overtime.
By not knowing exactly what inventory is on hand, it is easy to see how a large overhead of items can occur. Management may be ordering based on what they think is in stock, not necessarily what is really in stock. Another benefit to having a perpetual inventory system, is the ability to know what is being sold as well, so management is able to order based on what is being sold. Reducing overhead reducing operating costs as well as allowing for the warehouse to be more organized and efficient, without unnecessary product having to be stored.
When doing periodic inventory counts, it is necessary to completely stop business, in order to accomplish a more efficient inventory count. Shutting down business can obviously be a costly process, not just short term, but in the long term by losing customers who had to find other business to fill their orders. Perpetual inventory counts allow for business to run as usual, taking into account when products enter and leave a warehouse or store.
If would like to schedule a free consultation to see if QStock is right for you to handle cycle counts and get to perpetual inventory accuracy, Contact Us Today by filling in the form below or call us at (408) 252-9000. We would love to hear about your business and how QStock can help you achieve your business goals.
