Perpetual inventory system
Well, your balances get updated each time you take stock. “When do I calculate the cost of goods sold?” I hear you say. So you got the basic idea, but what about the important stuff? It sounds boring, but kind of romantic too, I guess.
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They check each and every item on the shelf, ticking them off and making sure it’s all accounted for. Someone walking around with a great dusty record book under their arm. It’s probably what you imagine when you first think of stock taking (if you’re anything like me). The time period can be set by the business, but generally businesses don’t do it very often because its super tedious and gets in the way of day to day activities. You basically just get in the stock room and physically count everything in one go. W hat is Periodic Inventory?Īs the name suggests, this method is simply about updating the inventory at fixed time intervals.
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Well, there’s some great software out there that can help, but we’ll get to that later.įor now, let’s start with getting to know the two main approaches of dealing with inventory - Perpetual Inventory and Periodic Inventory. These are issues that can have drastic effects on running your business. – Running out of cash - nothing worse than tying up your cash in dormant goods (aka carrying costs).– Poor replenishment - the stress of not knowing when to restock and.– Excess stock - this means tied up cash, and unnecessary use of precious space.– Missing stock - which can lead to late orders and unhappy customers.There are actually quite a few problems that might arise (don’t worry, things get better by the end).īut here’s a few just to give you an idea of the potentials: Well, now you not only need to keep track of the new products, but also of all the new materials you need, in order to make them.Īnd this is only one of the many issues that can come up as a result of poor inventory management. At that point everything is okay.īut what about when you start selling in larger numbers? And then you add new products to the roster phone cases, pen holders, wallets… If you started out making a specific wooden notebook cover then you might only need a limited number of materials. You have to account for all of those polished final products, as well as all the pesky little bits that go into making them to maintain inventory control. We all know that as a business steadily grows, and those orders start streaming in, it can get difficult to keep track of everything you have - especially if you make what you sell. Each certainly has their uses, and to understand which one suits your business’ needs we need to first understand what they bring to the table.īut before we get stuck in, let’s consider the harsh truths of taking stock. These are the two methods that companies have been using to keep track of their inventory in modern times. It’s a war as old as the 70’s, and yet it still goes on to this day. Perpetual inventory method on the one side, and Periodic inventory method on the other staring across at each other in the stock room with pure determination. The big daddy of inventory keeping battles. Many manufacturers use perpetual inventory to make sure their orders reach customers in perfect order without delay. They care about avoiding production waste and this also means keeping their inventory at optimum levels.
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