Inventory control is a crucial element for the development of any company. And is that good management allows us to identify and account for stored products, orders and purchases from suppliers and, at the same time, minimize costs?
There are two central systems of control: the periodic inventory system and the permanent or perpetual inventory system. Next, we will tell you the differences between both systems and the advantages that each one offers.
What Are The Differences Between Periodic Inventory And Permanent Inventory?
Periodic and permanent inventory systems are used to control the amount of inventory available. Endless inventory is the complete system since stock movements are continuously recorded.
On the other hand, this control must be done manually in the periodic inventory system and is usually done at regular time intervals (weekly, monthly, yearly, etc.).
Let’s see their differences:
It is the most used system among micro-companies and consists of the physical count of stocks. It depends on manual processes or simpler computer systems.
This method does not allow companies to immediately access the inventory value since this information depends on the periodicity of the counts, if they are monthly, quarterly, semi-annual or annual.
This implies that the count values will not always be up to date and will not be accurate. Also, keep in mind that the physical count of thousands of products is complicated and can take a long time, so companies do this count once a year.
The permanent inventory system consists of the constant recording of all stock movements, from the entrances and exits to the internal activities. In this way, we can immediately know the gross profit of the company.
The physical count of assets must be carried out at least once a year so that the information is consistent with the accounting records.
In addition, in this system, it is necessary to adopt a method that allows the costs of goods, inputs and outputs, billing, purchases, and sales. Next, we are going to see in a summarized way what are the main differences between both systems:
- Counts: The perpetual inventory offers continuous updates as the movements are made. In contrast, with a periodic list, there are only updates to the records after the physical stock count, which is usually done only once a year.
- Computer systems: The permanent inventory allows to keep the information constantly updated. With each entry and exit, the count of available quantities is recorded. On the other hand, the simplicity of periodic inventory allows manual recording of small amounts of stock.
When Is Each Recommended?
As we have already said, the periodic inventory system should be used when the volume of sales or stock is low since it is straightforward to carry out manual control of supplies. However, with this system, we will not have updated information during the periods in which the count is not carried out, which may affect the development of the activity.
Businesses with a high number of sales or several points of sale and that have a large volume of stock should always opt for permanent inventory.
What Are The Advantages Of Inventory Control?
Advantages Of Periodic Inventory
- Easy to implement. One of the main advantages of this system is that it is straightforward to implement. The manual inventory count can be carried out at any time, and, despite being done once a year, the company can define the periodicity of the count.
- Low cost. Thanks to the simplicity of this system, there is no need to invest in overly advanced software solutions. The only investment is the time required for manual counting.
- Little experience is required. As it does not require the use of complex technology, this system does not require a great experience in the use of advanced computer systems.
Advantages Of Perpetual Inventory
- Identification of errors. Due to the use of more advanced technology, this system allows you to identify mistakes quickly.
- Optimization of the purchase process. By having a continuous view of your stock, you will avoid unnecessary material orders and stock shortages.
- Better time management. Automating all these processes will save you time. The time that you will be able to invest more essential things to guarantee your company’s success.
- Information in real-time. The permanent inventory allows you to know the exact amount of stock at any time and offers you a much more detailed and broader view of the health of your business.
What Is The Best Option For Your Company?
When choosing between a periodic or permanent inventory, you should bear in mind that the regular system is quite helpful for startups or small companies, which sell few products or do not have a large budget.
On the other hand, the permanent system is ideal for other companies since it facilitates the optimization of all business processes.