Is a Perpetual Inventory System Right for Your Brand?
Inventory management is a critical function for every successful winery or CPG brand. If you're looking for an inventory management method that helps you forecast accurately and make better operational decisions, a perpetual inventory system could be the right choice. These computerized systems track sales immediately, allowing a real-time view into stock levels. With continuous monitoring, you can prevent stockouts and overproduction — all while managing cash flow and reducing lost sales.
In my years working with CPG brands at Balanced Business Group, I've learned that the right inventory management system can help cut costs and increase efficiency. In this article, I'll discuss the pros and cons of perpetual inventory tracking for wineries and CPG brands and show you how to determine if it's the right choice for your company.
Is a Perpetual Inventory System Right for Your Brand?
While most companies can benefit from a perpetual inventory system, it's not the most efficient choice for every business model. In my experience, the brands that see the highest ROI from these systems typically have:
Complex product lines
High sales volume
Numerous or diverse sales channels
Multiple locations
Because a perpetual inventory system automates data flows and keeps financial records up to date, it can help you manage a complex operation accurately and efficiently. After the initial setup, the system requires minimal manual input. Unless there's an error, you'll only need to perform occasional physical counts — a time-saver for businesses with high inventory turnover rates.
The drawback? Setting up the system requires a considerable upfront investment of time and money. If you run a smaller company with a limited product selection, a periodic system may be more efficient and cost-effective.
At Balanced Business Group, we're constantly scanning the market to find tools that make perpetual inventory systems more accessible for brands of all sizes. We test the options in-house so we can recommend the best choice for your specific needs and goals.
How do you know if your business is ready for a perpetual system? I usually recommend that clients make the switch when they reach $3 million in annual revenue. At this point, transaction volume is typically high enough to warrant the investment, even if you have a limited number of SKUs. When your company reaches this revenue threshold, it's also more likely to need the advanced cash-flow management benefits of a perpetual system.
What Is a Perpetual Inventory System and How Does It Work?
A perpetual inventory system continuously updates your inventory records as products move in and out of your business. The software integrates with your point-of-sale (POS) system, warehouse management tools, and barcode scanners. When your business makes a sale or scans a new shipment into the warehouse, it updates inventory counts automatically.
Inventory management programs such as Cin7 Core — our program of choice — can also connect to your accounting software. Every transaction is recorded automatically in your financial records, ensuring that your balance sheet, income statement, and cost of goods sold (COGS) are always current.
Unlike periodic inventory systems, which only update records at scheduled intervals, perpetual systems provide real-time visibility into stock levels and sales performance.
Benefits of a Perpetual Inventory System
A perpetual inventory system offers substantial benefits for CPG businesses:
Saves time. The biggest benefit of a perpetual inventory system for busy CPG brand owners is the potential time savings. Once the system is active, you can let it run for long periods. It automates repetitive processes and eliminates the need for regular inventory counts, freeing you and your staff to focus on revenue-generating activities.
Streamlines purchasing. An inventory management system can be programmed to generate a purchase order automatically when the stock level for any given SKU program drops to a predetermined level. This reduces manual monitoring and adjusts your ordering strategy to meet shifting customer demand.
Improved forecasting. Because a perpetual system records transactions immediately, it creates detailed sales and ordering data. You can analyze that information to identify patterns in demand and buying behavior throughout the year. This data also helps you account for wine-industry inventory seasonality during production planning.
Higher stock accuracy. A perpetual system reduces the margin for error by reducing the need for inventory counts and manual entries, especially for businesses with complex product offerings.
Better cash flow management. With real-time inventory information and more accurate forecasting, you can optimize ordering and adjust stock levels to align with demand. Keeping just enough inventory on hand enables you to fulfill orders efficiently while improving cash flow management. It also reduces holding costs and prevents stockouts, overstocks, spoilage, and waste while increasing profitability.
Challenges of Implementing a Perpetual Inventory System
While there are important advantages of perpetual inventory management for CPG brands and wineries, these systems also come with potential challenges:
High upfront and operational costs. Implementing a perpetual system is expensive — my clients typically invest $10K to $12K. In addition to software and hardware costs, you can expect to pay for installation and employee training. Because these systems rely heavily on technology, you'll also need to plan for ongoing expenses, which include updates, troubleshooting, and maintenance.
Time-consuming transition. Shifting from a periodic to a perpetual inventory system typically takes 6 to 8 weeks and requires consistent involvement from the founder. To ensure a smoother process, plan the transition during a quieter period when you can dedicate focused time and attention.
Complex system. Perpetual inventory systems are considerably more complex than periodic systems. The initial setup must be customized to your operation and integrated carefully with other technologies. Using and maintaining the system also requires a certain level of technical expertise across multiple teams or departments.
Requires accuracy. For a perpetual inventory system to work effectively, your employees must follow standard procedures for scanning, warehousing, sales, and data entry. Errors can reduce the system's accuracy, diminishing its benefits.
Preventive Measures
Fortunately, these issues are easily addressed with preventive measures. Use these tips to streamline the process:
Select software carefully. To minimize setup costs, select a program that's suited to your industry and business size. Look for a system that can scale with your operation, but avoid programs with numerous unnecessary features.
Calculate COGS. Before you implement a perpetual inventory system, take the time to build a strong understanding of the unit COGS for every product your company sells. Once the system is up and running, you can calculate COGS in real time and compare it to your baseline to inform decision-making.
Integrate the inventory software. Make the most of automated data flows by integrating the inventory software with your existing systems. Depending on your operation, you might link your POS system, accounting software, e-commerce platform, shipping and fulfillment programs, logistics provider, and electronic data interchange (EDI) platform. Many software vendors offer pre-built and custom integrations to streamline the process.
Train employees. Train your staff in standard operating procedures for receiving and warehousing merchandise, processing transactions, scanning items, and recording transactions. Ensure that they know how to operate barcode scanners, enter transactions in the POS system, and interact with the inventory software. Thorough training can go a long way toward improving accurate data entry and reducing human error.
Perpetual vs. Periodic Inventory: Which One Is Better?
Perpetual and periodic inventory systems both have different advantages — the decision depends on your business model. Here's an overview of the differences between perpetual vs. periodic inventory systems:
Periodic Inventory System Perpetual Inventory System
Updates inventory records periodically Updates inventory records continuously
Requires regular physical inventory counts Records transactions electronically
Lower startup costs Higher upfront costs
Lower maintenance costs Higher maintenance and operational costs
High manual labor requirement Minimal manual input after setup
Periodic inventory and financial reporting (including COGS) Real-time inventory and financial reporting (including COGS)
Higher potential for error Reduced potential for error
In general, a perpetual inventory system is better suited for larger businesses or CPG brands with high sales volumes and diverse product offerings. By digitizing inventory management, these systems make it easier to manage a complicated operation. Smaller companies with simple product selections and lower sales volumes can often save money by choosing a less expensive, low-maintenance periodic inventory system.
Improve Inventory Accuracy and Efficiency with the Right System
A perpetual inventory system can offer important advantages for growing CPG brands and wineries, including higher stock accuracy, better cash-flow management, and more accurate demand forecasting. Although these systems have high initial setup costs and are complex to implement, the long-term improvements in financial performance and operational efficiency often justify the initial investment.
At Balanced Business Group, our team has extensive experience helping brands select, implement, and optimize inventory systems. If you need expert guidance in choosing a solution that will grow with your business, contact us today.
Author: Pedro Noyola
Pedro Noyola is the CEO of Balanced Business Group (BBG), a company dedicated to helping Founders in the CPG food and beverage industry gain financial confidence. At BBG, Pedro combines traditional accounting with tailored financial guidance, providing industry-specific insights to ensure sustainable growth for passionate food entrepreneurs. He is also an angel investor and a mentor to emerging CPG brands via SKU and TIG Collective. Pedro’s career spans leadership roles at FluentStream, where he helped the company achieve recognition as one of the Fastest Growing Companies in America by Inc., and Telogis, where he was part of a team that grew the company’s recurring revenue from $50 million to $1.2 billion in under five years.
Pedro holds a BA and MPA from The University of Texas at Austin and an MBA from Harvard Business School. He is an active member of the Young Presidents Organization, continually seeking growth in both leadership and learning. Outside of work, Pedro enjoys family time and outdoor activities, drawing personal fulfillment from his roles as a husband and father.
