Perpetual Inventory System Explained: Benefits and Setup Guide

Realising how companies remain competitive and responsive in the modern market depends on knowing what is perpetual inventory. An inventory tracking system known as a perpetual inventory system constantly updates inventory records in real-time, immediately reflecting events, including sales, returns, or new stock acquisitions. This contrasts sharply with periodic inventory systems, in which inventory updates occur just at designated intervals—such as at the end of the month or year—when a physical inventory count is conducted.

Under a perpetual inventory system, the inventory data is continuously updated, so enabling managers and business owners to view current stock levels at any one moment without having to stop for protracted physical counts. For instance, the system instantly changes the accessible inventory if a good is sold in a retail store. The same occurs when fresh stock arrives from vendors; it is automatically entered into the system, and the available stock is modified.

Conversely, periodic inventory systems are relatively less sensitive. These systems track inventory events that are not in real-time. Rather, they depend on inventory counts spaced at set intervals. Mainly if there is theft, damage, or tracking mistakes over the period, this approach can cause differences between the recorded and actual inventory levels. Companies using periodic inventory may not find these problems until the following inventory count. Thus, their response to inventory needs in real-time becomes more difficult.