Understanding Periodic vs Perpetual Inventory Management Systems

Introduction

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.


What are Periodic and Perpetual Inventory Management Systems?

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. Products move in and out of your warehouse or drop ship locations.

This way of accounting is usually done automatically via software such as EMERGE App.

Inventory management software gives you real-time inventory levels

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.


Comparing Periodic vs Perpetual Inventory Management Systems

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. This works well for goods with limited shelf life.

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

Most importantly, any stock take aims to explain discrepancies between the actual stock that you have (we call this in-stock quantity at EMERGE App) and the stock available for sale.

So the more often you conduct stock counts, the more accurate your inventory records are. And thus your inventory will be fairly valued, too.


Inventory Cycle Counting

By now you must be thinking that physical inventory is bad and that perpetual inventory is good.

Having a real-time stock information at your fingertips is always a good thing. But physical inventory lends itself to businesses with specific products.

Here, we’ll introduce inventory cycle counting. This is a method of stock counting where you count a part of your inventory in a continuous cycle. The count can be done daily, weekly or monthly as there is no disruption to your business. How often you do cycle counts depend on the number of SKUs that you deal with in the business.

On the other hand, a traditional physical stock take involves manually counting all of your inventory in the warehouse. At the end of your audit, you make the necessary adjustments to your inventory records. For this to happen, however, you need to stop production or close the business while the stock take is underway.


Conclusion

Moving forward, the perpetual method of inventory management is highly recommendable and rightly so. It has 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. They will enable you to focus on what matters to your business. And ensure that real time and relevant data is always at your fingertips.