Understanding Periodic vs Perpetual Inventory Management Systems

 

Many trading and distribution companies often have a major headache when it comes to the crossroads of choosing periodic or perpetual inventory management.

Here at EMERGE App, we want to ease that headache of yours as quickly and simply as possible. Here’s what you need to know.

The Definition

Both systems are used primarily for accounting purposes, where it is used to determine the Cost of Goods Sold (COGS) across a time period or whenever necessary.

As the name implies, periodic inventory management requires an occasional count of physical goods at fixed intervals, for example once a week or once a month.

It also requires manpower in the form of a person on the ground manually sighting, counting and annotating your inventory.

Conversely, perpetual inventory management refers to the constant updating of goods in real time as products move in and out of your warehouse/drop ship locations.

This way of accounting is usually done automatically via software.

If there is no theft or damage to your goods, your balance should be accurate in real time.

Earlier companies relied on SAP or Oracle systems for customised solutions, while Salesforce came in as a cloud-based software provider.

Periodic vs Perpetual Inventory Management Systems – Comparision

In addition, between time periods you are blind to the movement of your goods as well as your COGS.

On the upside, frequent manual inspections you can check the quality and status of your goods, which works well for goods with limited shelf lives.

If you’re running a business with 3 or more employees, chances are you’re already using some form of perpetual inventory management.

Investopedia sums up the advantages succinctly:

“The technological aspect of the perpetual inventory system has many advantages such as the ability to more easily identify inventory-related errors. The perpetual system can show all transactions comprehensively at the individual unit level. Under the perpetual system, managers are able to make appropriate timing of purchases with a clear knowledge of the quantity of goods on hand at various locations. Having more accurate tracking of inventory levels also provides a better way of monitoring problems such as theft.”

Conclusion

Moving forward, the perpetual method of inventory management is highly recommendable and rightly so, for its time and administration saving capabilities if for nothing else.

If you’re in need of an inventory management software that allows FIFO capability, try EMERGE App and see what we can do for you.

Take advantage of our flexible system and batch labeling features that will enable you to focus on what matters to your business, and ensure that real time and relevant data is always at your fingertips.