If there’s one thing every good ERP consultant, warehouse manager, and finance controller can agree on, it’s this: knowing what’s in your inventory at all times is non-negotiable.
Yet, too many businesses still rely on periodic inventory counting, which is basically like checking your bank balance once a year and hoping for the best. Spoiler alert: it never ends well.
Enter perpetual inventory, the real-time, always-updating, never-guessing approach to tracking stock levels. And if you’re using Microsoft Dynamics 365 Finance & Operations (D365 F&O), you already have the tools to make this a reality.
Perpetual vs. Periodic Inventory: The Showdown
Imagine you’re a dad (like me), and your fridge is your inventory.
Periodic Inventory: You only check the fridge at the end of the month. Turns out, someone drank all the milk weeks ago. The kids are angry, chaos ensues, and you’re suddenly at the grocery store at 10 PM paying convenience store prices.
Perpetual Inventory: Every time someone takes milk, the fridge automatically updates. You know exactly how much you have, and a new gallon is already in the cart before anyone runs out. No surprise tantrums, no unnecessary late-night store runs.
That’s the difference. Periodic inventory relies on manual counts at intervals, which means stock levels can be inaccurate for days, weeks, or months. Perpetual inventory updates in real-time, ensuring that every transaction—purchase, sale, production, or adjustment—immediately reflects in your system.
Breaking Down the Key Differences
Feature | Periodic Inventory | Perpetual Inventory |
Update Frequency | At set intervals (weekly, monthly, quarterly) | Real-time, after every transaction |
Inventory Accuracy | Often outdated until next count | Always current and accurate |
Labor Involvement | Requires dedicated cycle counts | Minimal manual intervention required |
Impact on Financials | Large swings in COGS and inventory valuation | More stable and accurate financial reporting |
Technology Dependency | Can be done manually or in simple systems | Requires an ERP or inventory management system |
Why Businesses Stick with Periodic Inventory (Even When They Shouldn’t)
It’s How They've Always Done It – Many businesses have been using periodic inventory for decades and see no reason to change.
Lower Upfront Cost – Perpetual inventory requires investment in software, scanners, automation, and training.
Poor System Integration – Some companies operate multiple, disconnected systems, making real-time tracking difficult.
Fear of Change – Employees may resist automation, fearing job displacement or increased complexity.
Why Businesses Are Moving to Perpetual Inventory
Better Decision-Making – Real-time stock levels mean businesses can react faster to demand changes, supply chain disruptions, or stock-outs.
Reduced Waste & Shrinkage – By keeping better track of stock movements, businesses minimize losses from theft, spoilage, and mismanagement.
Smoother Financial Reporting – Real-time inventory updates mean fewer last-minute reconciliations and more accurate profit margins.
Scalability – Growing businesses need a system that can handle increasing complexity and transaction volumes.
Perpetual inventory isn’t just a technology upgrade—it’s a strategic move that keeps businesses competitive. In D365 F&O, you’re already halfway there with built-in capabilities that enable perpetual tracking with minimal effort.
How Perpetual Inventory Works in D365 F&O
D365 F&O is built to handle perpetual inventory from the ground up. Here’s how:
Real-Time Transaction Posting
Every receipt, issue, transfer, and sale updates inventory instantly.
Integration with Procurement & Sourcing, Sales & Marketing, and Production Control ensures that inventory is never an afterthought.
Automated General Ledger Updates
Inventory movements affect financials in real-time (depending on your ledger setup).
No more surprises at month-end when finance realizes COGS doesn’t match inventory levels.
Integration with Warehousing & Logistics
Advanced Warehouse Management (WMS) functionality helps track stock across locations, bins, and zones.
Inventory reservations ensure that what’s promised to customers is actually available (no more “sorry, that’s backordered” moments).
Lot & Serial Tracking
Perfect for industries like food & beverage (expiration dates), construction (high-value materials), and heavy machinery (unique serial numbers).
Who Benefits from Perpetual Inventory?
Just about every industry. But let’s get specific:
1. Homebuilding & Construction
Keeps track of materials across multiple job sites.
Ensures that costly materials aren’t misplaced (aka, walked off-site mysteriously).
Supports just-in-time replenishment so crews aren’t waiting for lumber.
2. Food & Beverage
Tracks expiration dates and ensures First Expired, First Out (FEFO) picking.
Reduces waste and ensures compliance with regulations.
Prevents stock shortages that lead to production stoppages.
3. Heavy Machinery & Equipment Resellers
Ensures high-value equipment is accounted for at all times.
Serial tracking keeps machines from “accidentally” going missing.
Helps forecast spare part needs for servicing and maintenance.
Common Challenges and How to Solve Them
1. "Our employees resist new processes."
Change is scary, especially for employees who have been doing things the same way for years. They may see a new system as unnecessary complexity.
Solution: Invest in ongoing training and change management. Explain the benefits in their language—less manual work, fewer errors, and no more end-of-year inventory panic.
Best Practice: Start with small wins. Introduce the most impactful and easy-to-use features first, then gradually expand. Gamify adoption with rewards for accurate inventory updates.
2. "Our inventory data is a mess."
Duplicate SKUs, inconsistent naming, and mismatched units of measure wreak havoc on accuracy.
Solution: Clean your data before implementation. Standardize descriptions, units of measure, and categories. Conduct a full inventory count before switching to perpetual tracking.
Pro Tip: Automate data validation in D365. Set up alerts for missing fields, duplicate records, or incorrect units to prevent bad data from creeping back in.
3. "We’re worried about the system handling our volume."
A high-transaction environment (e.g., e-commerce, large manufacturing) can cause system slowdowns if not configured properly.
Solution: Optimize batch processing and use Azure auto-scaling to handle peak loads.
Best Practice: Implement cycle counting by risk level—high-value or fast-moving items should be counted more frequently.
4. "What if we need to adjust inventory?"
Even with perpetual tracking, errors happen—items get misplaced, miscounted, or damaged.
Solution: Implement a quarantine location for stock adjustments. This allows investigation before changes impact financials.
Best Practice: Automate alerts for unusual stock movements. If a warehouse sees an unexpected spike in adjustments, management gets notified.
5. "How do we get executive buy-in?"
Leadership might hesitate to invest in changes if they don’t see clear benefits.
Solution: Present a financial case. Show how reducing stock-outs, improving cash flow, and reducing write-offs will justify the investment.
Quick Win: Implement real-time dashboards in D365 to give executives instant visibility into inventory metrics, cutting down on manual reporting.
6. "How do we make sure it sticks?"
Adoption isn’t a one-time event—it’s an ongoing process.
Solution: Set up post-implementation KPIs, conduct quarterly audits, and create a culture of accountability for inventory accuracy.
Best Practice: Reward teams for high cycle count accuracy and minimal discrepancies. Create a leader board showing the most accurate warehouse teams.
Success Story: A consumer electronics company reduced inventory discrepancies by 75% in a year by instituting continuous training and incentivizing accurate counts.
Dad Joke of The Day
I just realized that the word "seven" has "even" in it. That's odd.
Perpetual inventory isn’t just for massive enterprises, it’s for any business that wants to operate efficiently, reduce errors, and make better financial decisions. With D365 F&O, you already have the tools to make it happen. The only question is: are you ready to stop guessing and start knowing?
Keep your inventory as organized as a dad’s garage (or at least, more organized than his sock drawer).
DynamicsDad
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