6 Main Disadvantages of Perpetual Inventory Systems

perpetual inventory system 1

perpetual-inventory

Online software systems which help us in business are well and good. They ensure streamlining many essential aspects of the company, from accounts, management, marketing, and inventory controls, among many others. Employing inventory systems of any type is imperative, especially in an organization that would handle physical items of various kinds in their business module.

The absence of any type of inventory control in business would lead to utter chaos in the receiving, stocking, and sales of the items, which are an integral part of the company. Hence every aspect would need to be tracked so that no item that comes in would go out without going through the proper records.

Previously the items were tracked by periodic inventory control but after the introduction of computers in 1970, and the related software things changed. The perpetual inventory systems were introduced, but some issues and flaws occurred.

The disadvantages of perpetual inventory systems came to the fore though there were equally or more advantages by employing such systems. Some of them are listed below, but that does not mean that the disadvantages of perpetual inventory systems would outweigh the benefits. There are more of the latter rather than of the former hence employing it would be more advantages.

The disadvantages of perpetual inventory systems could help in so many ways, especially in saving money and time.

#1. Loss of items

Using the perpetual inventory systems would ensure fast and easy record keeping of various items in stock in any organization. The issue that would trouble such a system being in place is when an item is lost for any reason or other. Unless physically checked the anomaly would not be detected.

In the periodic inventory system, there was a physical inventory conducted to match the physical stock with the stocks in the books, which was imperative. But in the perpetual inventory system, it is not required unless done proactively, which is when any loss would be detected. This could be considered as significant disadvantages of perpetual inventory systems.

#2. Breakages

Inventory breakage

The same goes for breakages as well, if they are not immediately adjusted into the system. If any item breaks and is un-saleable or useable, then it should be discarded and the records corrected accordingly. If any item is broken and discreetly discarded and not adjusted into the system, it would remain so, unless physically checked. This is a major disadvantage in perpetual inventory systems.

#3. Theft

inventory theft

If theft is not detected or arrested at the point of exit of such items from the warehouse or stores, it will remain unaccounted for. That would also come into the management’s domain only when physically checked. Large companies implement strict procedures to ensure theft is prevented and use many types of controls at the physical exit points. This is also a significant disadvantage in perpetual inventory systems.

#4. Scanning errors

inventory tracking

Every item within a perpetual inventory control system would need to have a “barcode” or a tag to ensure it could be scanned. If an error occurs in the scanning system either when the item comes in or goes out, the perpetual inventory system would not be able to detect it. This is another disadvantage of perpetual inventory systems.

#5. Improper inventory tracking

inventory tracking

There should be a very streamlined and effective back up to the perpetual inventory system. If such a system is not implemented detecting and improper inventory tracking would not be proactively detected. This is another major issue and disadvantages of perpetual inventory systems.

#6. Hacking

Software Hacking

This is also another major disadvantage of perpetual inventory systems because any software that you would implement would use the internet. We know that even the top American security systems have been breached by criminals, and there is no limit to unscrupulous individuals if they try their hand to hack and infiltrate. Being online, your vulnerability increases, but that would not happen if you stick to the old system of monitoring stocks in “stock cards.”

Conclusion:

While there are advantages in every system, there would be disadvantages too. Abstaining from using the online systems is not the problem. Today there are adequate controls that could be implemented to arrest the situation, but we know that the “world is not perfect.”  

You May Also Like

Leave a Reply