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What is Continuous Inventory?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 29 November 2016
  • Copyright Protected:
    2003-2016
    Conjecture Corporation
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Sometimes referred to as a perpetual inventory, the continuous inventory is a means of maintaining a systematized documenting process that is always in agreement with the physical stock on hand. As items are removed from the stock or supply area for use or consumption, the continuous inventory detail is adjusted to note the reduction in physical inventory. Many businesses use this method to ensure that needed goods are on hand at all times, and as a reminder to re-order certain key products when necessary.

The maintenance of a continuous inventory is common with manufacturing facilities, where there is a constant need to replace worn parts on production machinery. Generally, a supplies area is established somewhere on the production site, and a supplies manager is charged with overseeing both the physical and book inventory situations. Often, individuals who need to obtain parts or other supplies as part of maintenance and repair operations will approach the manager with a written request of what is needed. The manager enters the storage area for the physical inventory, retrieves the item or items, and delivers them to the requesting party. At this juncture, the supplies manager can utilize the written product request to deduct the items from the book inventory, bringing the physical and the written inventory back into sync.

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In many manufacturing situations, there are periodic reconciliation processes that double check the book inventory against the physical inventory. For example, a company may require that there be a physical hand count of all goods in the physical inventory at least twice per calendar year. The results of the hand count are compared to the book inventory and adjustments made as needed. This process acts as a secondary check and balance system to assure the stability of a continuous inventory.

One major benefit of the continuous inventory approach is that it makes it easy to schedule re-ordering of key parts and supplies once the inventory level reaches a designated low point. When posting recent disbursals to the book inventory, the supplies manager will note when the number of units in the physical inventory slip below a certain point, and begin the process of executing an order for additional units. This process helps to ensure there are always enough parts and supplies on hand to keep the production machinery running properly.

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