Perpetual and Periodic Inventory System

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The inventory system is a fundamental practice in the logistics management of any company. The inventory system can be divided into two main types: the perpetual inventory system and the periodic inventory system. Both systems have their own advantages and disadvantages and are used by companies according to their specific needs and requirements.

Perpetual Inventory System

The perpetual inventory system, also known as the continuous inventory system, is a system where the inventory record is updated continuously. This means that whenever a commodity is bought or sold, the transaction is immediately recorded in the system. This allows the company to have a real-time view of the available stock level at any given time.

This system is very useful for companies that deal with a high volume of daily transactions. It helps to avoid overcrowding or stock-outs as the company always has a clear view of its inventory level. Furthermore, the perpetual inventory system is also useful for auditing purposes as it allows effective tracking of all inventory transactions.

However, implementing a perpetual inventory system can be expensive and complex. It requires sophisticated inventory management software and may also require additional training for employees. Furthermore, if the system is not properly maintained, it can lead to errors and inconsistencies in inventory records.

Periodic Inventory System

By contrast, periodic inventory system is a system where the inventory record is updated periodically, usually at the end of a specific time period, such as weekly, monthly, or yearly. This means that inventory transactions are not recorded immediately, but are posted at the end of the chosen time period.

The periodic inventory system is less complex and less expensive to implement than the perpetual inventory system. It doesn't require sophisticated inventory management software and is generally easier to maintain. This system is ideal for small businesses that don't have a high volume of daily transactions.

However, the periodic inventory system has its drawbacks. It does not provide a real-time view of the stock level, which can lead to overcrowding or out-of-stocks. Additionally, it does not allow for effective tracking of inventory transactions, which can be a problem for auditing purposes.

Conclusion

In summary, both perpetual and periodic inventory systems have their advantages and disadvantages. The choice between the two depends on the specific needs and requirements of each company. It is important for companies to understand the differences between the two systems and choose the one that best fits their logistics operations.

Regardless of which inventory system you choose, it is crucial that businesses keep accurate and up-to-date records of their inventory. This not only helps to avoid problems such as overcrowding or out-of-stocks, but is also essential for effective management of company resources.

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