Sep 21, 2022

Introduction of 2 Types of Inventory Control System – Periodic and Perpetual Inventory System

What is Inventory Control System?

Inventory control system is a technology system to manage, update and track inventory. It will integrate the process of purchasing, transportation, receiving, storage, shipping and returns into one system.

The best inventory control system will accurately tell you how much inventory is available for sell, where it is located and when it needs to replenish, and able to help retailers to maintain a minimum safety stock level.

2 Types of Inventory Control System

Retailers can improve the efficiency of the supply chain through involving a best-fit inventory control system.

In general, there are 2 types of inventory control systems –

Periodic Inventory System

Periodic inventory system refers to regularly carry out physical count of inventory, says every 1 or 3 months. Under this system, retailers will not be able to keep track of inventory balance continuously, and they only can run their daily operations with estimated inventory figure.

The advantage of periodic inventory system is easy to implement, as it requires fewer records. Retailers do not need to keep separate accounting for raw materials, work-in-progress, and finished product inventory.

Also, the calculations are easy, too, as the cost and revenue are calculated by simply using the initial and physical count of inventory.

Periodic inventory system may work well for small businesses, as they do not have too much stock, and can perform the physical inventory count easily.

However, inventory record built by physical and manual count is at higher risk of errors, and these errors may lead to inaccurate forecasting, stock outs or obsolete inventory, and resulted in customer dissatisfaction due to unfulfilled needs.

Perpetual Inventory System

Perpetual inventory system is an inventory management system that records every sale and purchase of inventory in real-time, through point-of-sale (POS) or other automated software.

What are the Advantages of Perpetual Inventory System?

Real-time Update

Perpetual inventory system updates the inventory levels in real time, and the changes are accurate and can be accessed whenever and wherever you need it.

Improve Inventory Operating Cost

Perpetual inventory system will automatically calculate the quantity of raw materials, work-in-progress and finished goods; stock holding costs; and replenish low stock items, which helps retailers to save much labour costs on manual operations.

Integration with other software:

Perpetual Inventory System can integrate with other business systems such as Inventory Management System, Finance, Sales and warehouse, in order to provide the most accurate, all-rounded and real time information to retailers.

Although perpetual inventory system has many advantages, there are few things to pay attention to:

High Setup Costs – Retailers need to invest certain amount of money to setup the system, develop the software, train their staff, and pay for the maintenance costs, which may be a pressure to small businesses.
Lost Items in Physical Inventory – Since this system will only record the sale and purchase, but not the actual count. Retailers may not be able to confirm the physical status such as inventory lost, damage or stolen.

Periodic vs. Perpetual Inventory System

If you are planning to expand your business, or seeking for better inventory control, or eager to improve your demand forecast, perpetual inventory system may be a good choice to you.

Not sure which inventory management system fits your business? Or need support to transform your inventory management system into a better model?