Last Updated on July 30, 2022 by
A product monitoring tool, which evaluates the flow of goods and services, is important for business owners and managers to maintain smooth operations. By utilizing an inventory system, businesses will easily avoid potential waste, trading losses, and other costs associated with poor inventory management.
According to the size of the business, the owner should determine whether a periodic or perpetual inventory system is the most appropriate for them. We will discuss in this article some advantages and disadvantages of a systematic approach to inventory management. If you need inventory management software for your E-commerce store on Amazon, Walmart, or any other platform, Inventooly is the right tool for you.
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Perpetual vs. Periodic Inventory Systems
The management of inventory systems used to be handled manually by store managers who took inventory at specific moments in a production cycle. Such a method is known as periodic inventory management. Alternatively, businesses may maintain a perpetual inventory system, which continuously tracks goods coming in and going out of a business in real-time.
A periodic inventory is the cheaper method, but it can be hard for a large business to conduct one because it requires lots of time and resources. A perpetual inventory listing, on the other hand, may be faster but can also be more expensive in some cases.
What Is a Periodic Inventory System?
Every item in stock is physically counted at a predetermined point each period as part of a periodic inventory. It provides a precise estimate of the volume of goods available at the point of stocktaking but does not account for the volume of goods available continuously throughout the day.
In accordance with the size of the inventory, periodic inventories can be done weekly, monthly, quarterly, or annually. Manually, this type of inventory is done using a spreadsheet or a physical document.
Periodic inventory: pros and cons
A periodic inventory has a number of benefits and disadvantages.
Pros
Reduced Startup Costs
Performing periodic inventory requires a limited number of materials, which results in a lower setup cost. As a result, smaller businesses are better equipped to perform periodic inventory.
Maintaining Records in a Simpler Way
This is a very easy and straightforward way of understanding a periodic inventory since it usually shows three basic parameters:
- Currently, available items
- How many items were purchased
- Amount of items sold
It is much easier to analyze the data and make any necessary adjustments with just these three items on the spreadsheet.
Minimal experience required for implementation
Because of its simple design, any person with a basic understanding of mathematics can handle a periodic inventory quickly and effectively. Because complex technology is not involved, store managers do not require specialized training. They can begin using the system instantly once the system has been set up.
Cons
Costs associated with lost man-hours and increased overtime
An employee must dedicate themselves to manually counting each item in the inventory when using a periodic inventory system. Rather than using valuable man-hours for productive activities, these can instead be funneled into a repetitive task. For inventory checks performed outside of regular working hours, employers wishing to avoid man-hour losses may also have to pay their employees overtime. In that case, overall costs would be higher.
Errors are more likely to occur
The inventory process is more likely to result in human errors than when carried out by computers. Data collation errors often happen when the numbers are miscounted, double-counted, incorrectly calculated and presented, or entered incorrectly.
What Is a Perpetual Inventory System?
In the perpetual inventory system, which is known as continuous inventory systems, all items sold and restocked on a continuous basis can be tracked. The data is automatically updated, and the operators are notified when their inventory changes.
All data collected can be accessed through a central hub via a perpetual inventory system. Barcodes, RFID readers, computer programs, and POS systems can all be part of a continuous inventory system.
Perpetual inventory: pros and cons
Both advantages and disadvantages can be associated with perpetual inventory systems.
Pros
Surveillance of active inventories
Inventory turnover tracking in real-time enables you to predict periods of deficits so that you can adjust the inventory prior to shortages negatively affecting productivity. VMI (vendor-managed inventory) from DXP is a perpetual inventory system that provides benefits like these.
Managing data from multiple sources seamlessly
Data collected from multiple sources can be efficiently gathered and analyzed with perpetual inventory management systems. Consequently, perpetual inventory management systems are ideally suited for large operations with multiple locations.
Analysis of Predictive Information
The consumption patterns of consumers can help businesses predict future buying patterns, which will allow them to optimize inventories in periods of high demand and times of lower sales. In inventory management, reduction of lead times is one of the primary benefits of a perpetual system.
Cons
Costs associated with starting a business are higher
In comparison with a periodic inventory management system, the costs of setting up a perpetual system are significantly higher. Perpetual systems are very expensive since they require many specialized components like RFID codes, scanners, computers, and so on.
Which inventory system is suitable for you?
Based on our analysis of both inventory systems, we have established their benefits and downsides. The choice of inventory management system depends largely on your business’s size and the budget allocated for that purpose. Periodic payment systems are ideal for small businesses with small budgets. For larger businesses, however, a perpetual inventory listing is the better choice since they have more upside and fewer restrictions on supply chain investments.
Do you still have questions about the best system for your business? No worries, we can assist you. Contact our E-commerce experts on Inventooly and let us know how we may be of service.
Read More: How Inventory System Software can Help Reduce Costs?
