09 Jul What Are the Benefits of Using a Computerized Inventory System?
It’s still possible to operate a business without a computer, but it would have to be a very small business and you’d definitely be doing things the hard way. Since you’ve likely got computers in your business anyway, it makes sense to maximize the value you get from them. One way to do that is by computerizing your inventory system. You can use the computer just to speed record keeping or go to a full-blown, real-time inventory system, depending on your needs, but either way, you’ll benefit from having it computerized.
Periodic vs. Perpetual Inventory Systems
Broadly speaking, there are two ways to manage your inventory. One is by physically counting it periodically at regular intervals, and then reconciling your actual inventory with the figures shown on your books after you’ve accounted for incoming orders and outgoing sales. This method benefits from computerization in a number of ways, although if your business is small enough, you can keep it entirely “old school” by using pens and paper. Businesses with larger inventories to manage and higher turnover of product, generally favor what’s called a perpetual inventory system. This type of system keeps track of your sales and orders in real time, updating your inventory count with every transaction. That’s where the benefits of computerization show up most clearly.
Quick, Accurate Counting
Even if you use a perpetual inventory system, you’ll need to do a physical count occasionally to make sure your inventory records are accurate. One of the greatest advantages of a computerized inventory system is that it makes for faster, more accurate counting. Scanning bar codes or QR codes is faster and easier than writing down stock numbers manually or flipping through pages of inventory sheets, looking for the correct item. It also means you won’t have to transfer those numbers manually to your accounting software or inventory database, which eliminates another possible source of errors and several hours of data entry time. Instead, it’s a quick electronic upload.
Better Receiving and Shipping
Computerized inventory systems make shipping and receiving orders simpler as well, and leave less room for error. You can simply scan the product into inventory as it’s received, and it will show in your on-hand inventory. In much the same way, when you send out an order to your customers, you can scan each item out of inventory. In retail, of course, your cashiers do the same thing as they swipe or scan each item sold. You’ll still need to train your staff to double-check the contents of each box against the order or invoice, but you’re still eliminating one or more data entry steps in which errors can occur.
Every time you count your inventory, you’ll find that some of what you’re supposed to have just isn’t there. There are a number of potential reasons for that, with shoplifting and employee theft leading the list. Your own in-house administrative errors and vendor fraud are significant factors too. According to figures from a 2017 National Retail Federation survey, they account for a combined total of more than 26 percent of shrinkage, which can add up to real money. By reducing opportunities for errors in your counting, shipping and receiving processes, computerized inventory systems can help bring that number down.
Better Inventory Management
If you use a periodic inventory system, your book inventory count will usually be outdated by the time your accountant finishes updating the data. This means you’ll need to always carry at least a small amount of extra inventory to cover your projected sales, or your projected production if you’re a restaurant or manufacturer. That ties up money and storage space you’d otherwise have at your disposal. With a computerized perpetual inventory system, you’ll always know your inventory levels with just a glance. You may be able to carry less inventory or even go to a full-blown, just-in-time inventory system, with product arriving from your vendors as it’s needed. That can represent a real cost saving.
Real-Time Management Information
One of the crucial advantages of a computerized perpetual inventory system is that it gives you the management information you need in real time. That goes beyond current sales figures and inventory levels, to the heart of your operations. Consider your cost of goods sold (COGS), for example. It’s a figure that measures how efficiently you turn your supplies into sales revenues, or in the case of a retailer, what margins you’ve made on the products you’ve sold. In a periodic inventory system, you only truly know your COGS at the end of an inventory cycle, when you’ve physically counted your inventory and your accountant can do the math. In between, you work from a cost flow assumption, which amounts to little more than a “best guess.” With a perpetual inventory system, you can see an up-to-date COGS at any time, which means you’ll identify – and be able to correct – problems as they occur.