What Are The Key Differences Between Perpetual Inventory & Physical Inventory?

Inventory management is crucial in any business, influencing cash flow, customer satisfaction, and overall operational efficiency. As a business owner, you must understand and choose the right inventory management method. There are mainly two methods used to track and manage inventory- perpetual and physical. While both serve the same ultimate purpose of monitoring stock levels, they differ significantly in their approach, implementation, and implications for the business. Let’s delve into the key differences between perpetual inventory and physical inventory.

What is Perpetual Inventory?

Perpetual inventory is one of the methods of managing inventory levels. This inventory management system maintains a steady record of inventory changes. This approach involves real-time tracking of inventory levels, allowing businesses to know precisely how much stock they have at any given moment.

What is Physical Inventory?

On the other hand, physical inventory is an inventory management system that relies on periodic physical inventory counts. This is the manual process of tracking inventory. This approach typically involves shutting down business operations temporarily to conduct a thorough count of all stock.

Perpetual Inventory Vs Physical Inventory

Here are some major differences between perpetual inventory and physical inventory:

Technology Dependency

Perpetual inventory systems are heavily reliant on technology, integrating with POS systems and other automated tracking tools. Physical inventory, on the other hand, is a manual process, allowing for manual counting and record-keeping.

Frequency

The most significant difference between perpetual and physical inventory is the frequency of updates. Perpetual inventory updates continuously in real-time, while physical inventory relies on scheduled counts (weekly or monthly), resulting in infrequent updates.

Accuracy

Perpetual inventory is an automated process of inventory counting, and most of the process happens in real-time, making it errorless and easier to detect errors, theft, or misplacement quickly. Meanwhile, physical inventory has human involvement, meaning it can have discrepancies between counts due to manual errors, leading to a higher risk of inaccurate data.

Operational Efficiency

Physical Inventory often requires manual processing, which can disrupt the business operation and can be time-consuming. Perpetual inventory, by contrast, does not typically require business interruption since it updates continuously without the need for a complete shutdown, offering you better operational efficiency.

Cost of Implementation

Implementing a perpetual inventory system can be very expensive due to its heavy technological requirements. Physical inventory, while it does have costs related to labor and business interruptions, uses spreadsheets and other forms of data-keeping solutions, which are quite affordable for businesses with tight budgets.

Final Thoughts

Having the best tools at your disposal can help your business to grow even further. Both perpetual and physical inventory have their own pros and cons to deal with. Choosing the right method of inventory tracking depends on a business’s size, complexity, and resources. WrkPlan is a leading cloud-based inventory management software that can help businesses of all sizes run operations more efficiently. To find out more about our inventory management solution, simply give us a call at 1-800-120-2449 or sign up for a free demo of our software today!