The Periodic Inventory System

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In business, the inventory system is how you keep track of your goods and materials. This is an essential part of your business, as inventory is how you make your money. If you’re not properly keeping track of your inventory, you’re not maximizing your profit. Today there are numerous kinds of inventory systems and inventory software to help you, so there’s no excuse for you to not keep proper track of your inventory.

There are two main types of inventory systems, the perpetual inventory system and the periodic inventory system. Both are valid inventory systems that you could consider using. The main difference between the two systems is how often inventory data is updated. Today we are going to discuss the periodic inventory system. And in the next post, we’ll talk about the perpetual inventory system.

The periodic inventory method – is one in which inventory data is updated after a specific interval of time, usually once a year. This is where the term periodic comes from. Data is entered into the inventory systems after a specific period of time, unlike with perpetual inventory, where the data is updated constantly as sales occur.

In the periodic inventory system, information is not kept consistently up to date. Inventory information is noted, but total store of the inventory is only taken once a year.

This inventory management system appeals to many people because you don’t have to spend as much money up front to set up the technology and inventory software needed to keep track of data in a perpetual inventory system. Excel may well suffice for this type of inventory control.  And when you are starting a business, upfront cost minimization is critical.  However, if you plan to grow quickly and think you might want a better handle on your inventory, then the periodic system may not be right for you.  While it’s important to be aware of the numerous costs associated with launching software and systems, the cost of running out of inventory or having to stock more than you really need may actually be higher than the cost of the software.

One of the major drawbacks of selecting this inventory system is that for the entire year in between when your inventory is totaled, you don’t have immediate access to inventory information. Thus, it’s essential to consider the size and scope of your business when choosing to use this system. If you severely overstock or understock your business, the problem may not become apparent for a while. Some people find that the savings from this type of system make up for the risks associated with it.  The other consideration is the cost of switching – sometimes it’s better to bite the bullet and put the right management tools in place at the start, rather than disrupting the business later to implement a software change.

In conclusion, there are two main types of inventory control systems, periodic and perpetual. Both are valid choices for your inventory management system. Keep in mind your long-term goals before you select a short-term approach.  There are a lot of options for growing into inventory management solutions over time and the upfront cost of a perpetual system may not be that high after all.

PS : If you want to learn about the inventory management features in Ordoro, please click here.