Whatever Happened to the Perpetual Inventory System?

Executive Summary

  • Perpetual Inventory System and The Material Control Process
  • How Does a Perpetual Inventory System Differ from a Periodic Inventory System?
  • The Material Control Process.
  • The Impact of the Concept of MPS on the Perpetual Inventory System
  • The Material Control Process as the Perpetual Inventory System
  • Computerization and the Perpetual Inventory System Concept
  • Perpetual Inventory System Usage.

perpetual-inventory

Introduction

In this article I will cover the perpetual versus the periodic inventory system. But this process was actually kicked off when I was sent a diagram by the grandson of the creator, who was Robert E Mitchell. Pat Mitchell was nice enough to send me a diagram that his grandfather developed back in 1946, which is officially titled “Processing the Examination of a Manufacturing Enterprise for Purposes of Planning, Coordination, and Control.”

This diagram contains all types of interesting information and the more I looked at it, the more I found. One observation which I will discuss here is the diagram used the term perpetual inventory. We don’t hear this term very often today, and there is an interesting reason.

Perpetual Inventory System Versus the Periodic Inventory System and The Material Control Process

Below is a section of the diagram sent by Robert E. Mitchell.

Materials Control

The diagram has a single output for planning which is the Master Schedule, which goes to the Materials Control process.

The Impact of the Term MPS and the Perpetual Inventory System

  • This is a shortened term of the Master Production Schedule or MPS. This is a misleading term because the “master” portion of the term means a subset of planning – and is often confused with the term MRP – which is a method of supply and production planning.
  • It is a distinct term from MPS. This is explained in a previous article. (the term has also been confusing and incorrectly used by software vendors adding to the confusion on projects, which is described in this article).

Robert Mitchel’s used the term “Prime Schedule Materials,” which is not a word in general usage today. It indicates that he is referring to the fact that the MPS he is describing is a subset of the overall product database – which is one of the four ways of restricting the planning run to create an MPS.

The Material Control Process as the Perpetual Inventory System

At the time of this diagram, the MPS is sent to the materials control process. The material control process is made up of two primary components (which is off to the right of the diagram). One of them was “perpetual inventory.” This of course brings up the topic of the term perpetual inventory. What ever happend to the term perpetual inventory?

“Perpetual inventory” pre-computerization term, which means how frequently the inventory position is updated (related loosely to how often stocking can be recalculated). The description of perpetual inventory included in the diagram tells use quite a bit about how they accomplished perpetual inventory iBefore

“…Perpetual Inventory, maintained by means of credit and debit cards for every factor affecting the stores (i.e. stocks) balance-deliveries to and issues from stores; requisitions, requirements, production and purchase orders. So that at any time and for any component, balances may be struck off to show the stock dates of that component for the present and for any and all future periods.”

Computerization and the Perpetual Inventory System Concept

Prior to computerization, inventory levels were calculated by humans. Obviously, a human cannot perpetually recalculate every stock position for the products that a company stocks. Therefore, different products were set up on a schedule or a calendar, with each product location combination going being recalculated on this periodic basis. This was a “periodic inventory system.” That is only parts of the product database were calculated as part of the periodic inventory system. This meant of course that at any point in time a large number of the product location combination stock levels were not updated.

  • This activity was part of a perpetual inventory system concept that was apparently managed manually before computerization. How this was done is not clear (as I have explained above)
  • It one of the first set of tasks to be implemented in software. In fact, a perpetual inventory system was incorporated into mainframe-based reorder point applications that preceded MRP systems (they were quickly supplanted by ERP systems and therefore were only sold for a short period). The logic that drives planning systems today has not changed appreciably since 1946.

Conclusion

  • The term “perpetual inventory system” fell into disuse as all systems incorporated the concept of continuous calculation of inventory stock levels. That is once all systems were capable fo performing perpetual inventory calculations, it no longer became a “feature.”
  • That is the stock level, as well as the future stock levels, are perpetually recalculated or perpetually updated. This capability was provided by computerization of inventory management.

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References

I cover inventory concepts like this in the following book.

Supply Planning Book

SUPPLYSupply Planning with MRP, DRP and APS Software

Showing the Pathway for Improvement

Supply planning software, and by extension supply planning itself, could be used much more efficiently than it currently is. Why aren’t things better?

Providing an Overall Understanding of Supply Planning in Software

Unlike most books about software, this book showcases more than one vendor. Focusing an entire book on a single software application is beneficial for those that want to use the application in question solely. However, this book is designed for people that want to understand supply planning in systems.

  • What methods fall into APS?
  • How do the different methods work and how do they differ in how they generate output?
  • What is the sequence of supply planning runs?

These types of questions are answered for readers in this book.

This book explains the primary methods that are used for supply planning, the supply planning parameters that control the planning output as well as how they relate to one another.

Who is This Book For?

This book as a practical primer for anyone looking to perform a supply planning software selection, any person beginning a supply planning project, or anyone who just wants to understand supply planning software simply better.

Chapters

  • Chapter 1: Introduction
  • Chapter 2: Where Supply Planning Fits Within the Supply Chain Planning Footprint
  • Chapter 3: MRP Explained
  • Chapter 4: DRP Explained
  • Chapter 5: APS Supply Planning Methods
  • Chapter 6: APS for Deployment
  • Chapter 7: Constraint-based Planning
  • Chapter 8: Reorder Point Planning
  • Chapter 9: Planning Parameters
  • Chapter 10: How MRP, DRP, and APS Relate to One Another
  • Chapter 11: Supply Planning Visibility and Master Data Management
  • Chapter 12: Understanding the Difference Between Production Versus Simulation

Software Ratings: Supply Planning

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