Bean Zone Case Study

Bean Zone Internal (Part Two)

Perpetual Inventory System

How does it work?
The perpetual inventory system keeps a running record of all inventory that should be on hand. The system requires the use of inventory cards (or other ledger accounts) that record whenever inventory, e.g. Arabica beans, are bought or sold, to keep a record of the inventory the business (Bean Zone) should have by increasing or decreasing the inventory account. In addition, it keeps a running record of cost of goods sold, sales and sales returns.
Advantages of using this system
One main advantage for Bean Zone using the perpetual inventory system is that it helps identify missing inventory. This is because the perpetual inventory system keeps a theoretical balance of
It is important that one person is in charge of ordering the beans (or at least checking and approving the orders) because this will prevent staff members from ordering beans for themselves - each order will be checked to ensure that Bean Zone needs the beans. Having an authorisation system in place also avoids the problem of double-ordering inventory, which could arise if two different staff members order the same item. Kelly should have one full time staff member who orders inventory, another who authorises inventory purchases and another staff member to receive the inventory. In this way there is a separation of duties which is important as if one employee was to order inventory they could authorise it and then receive the inventory when it arrives to keep for themselves. This would decrease Bean Zone’s profit, sales and increase
She could use her computer to set this up so that when the inventory reaches a certain level she knows to buy more inventory. This reorder point should be based on the lead time of knowing that beans arrive two days after ordering (as the beans are coming from Global Beanz which is located in Tauranga), but also there can be delays which mean that beans could arrive five days after ordering them. By having a reorder point, Kelly would not have the problem of running out of stock for customers (which occasionally happens). Having a reorder point is important because it should prevent the business from running out of inventory. This means that customers are kept happy by having inventory on hand and there will be increasing sales. Having a reorder quantity helps make the ordering process easier and quicker, and it should also mean the business is avoiding over-ordering stock (leading to possibility of obsolete stock). Having optimum inventory levels helps maximise sales and