Disadvantages to a Perpetual Inventory System

by Kathy Adams McIntosh ; Updated September 26, 2017

Businesses choose between perpetual and periodic inventory systems. Many businesses opt to implement a perpetual inventory system because it allows the business owner and employees access to real time inventory quantities and values. A perpetual inventory system also comes with some disadvantages.

Higher Cost Investment

One disadvantage of a perpetual inventory system involves the setup cost. Most systems require the purchase of new equipment and inventory software. This equipment includes point of sale scanners which read the bar code of each item. Scanners are also required when items are received into inventory. Perpetual inventory systems also add to labor costs since all inventory must be entered into the system.

Training on Equipment

Another disadvantage to implementing a perpetual inventory system involves the increased level of training required. Employees need to know how to operate the various scanning equipment. Accounting personnel need training to navigate the inventory system.

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False Reliability

Perpetual inventory systems can be misleading when reviewing inventory levels. Employees can make mistakes entering quantities or scanning the wrong inventory item. Shoplifters may steal merchandise.

Increased Monitoring

The need for increased monitoring because of employee errors or customer theft requires an additional financial investment. Security monitors typically need to be installed and some companies hire security personnel.

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