4 Types of Inventory Control Systems: Perpetual vs. Periodic Inventory Control and the Inventory Management Systems That Support Them

Inventory control systems are technology solutions that integrate all aspects of an organization’s inventory tasks, including shipping, purchasing, receiving, warehouse storage, turnover, tracking, and reordering. While there is some debate about the differences between inventory management and inventory control, the truth is that a good inventory control system does it all by taking a holistic approach to inventory and empowering organizations to utilize lean practices to optimize productivity and efficiency along the supply chain while having the right inventory at the right locations to meet customer expectations.
That being said, there are two different types of inventory control systems available today: perpetual inventory systems and periodic inventory systems. Within those systems, two main types of inventory management systems – barcode systems and radio frequency identification (RFID) systems – used to support the overall inventory control process:

Inventory control systems help you track inventory and provide you with the data you need to control and manage it. No matter which type of inventory control system you choose, make sure that it includes a system for identifying inventory items and their information including barcode labels or asset tags; hardware tools for scanning barcode labels or RFID tags; a central database for all inventory in addition to the ability to analyze data, generate reports, and forecast demand; and processes for labeling, documenting, and reporting inventory along with a proven inventory methodology like just-in-time, ABC analysis, first-in, or first out (FIFO), or last-in-first-out (LIFO). Read on to learn more about the four types of inventory control systems.

Perpetual Inventory System

When you use a perpetual inventory system, it continually updates inventory records and accounts for additions and subtractions when inventory items are received, sold from stock, moved from one location to another, picked from inventory, and scrapped. Some organizations prefer perpetual inventory systems because they deliver up-to-date inventory information and better handle minimal physical inventory counts. Perpetual inventory systems also are preferred for tracking inventory because they deliver accurate results on a continual basis when managed properly. This type of inventory control system works best when used in conjunction with warehouse inventorya database of inventory quantities and bin locations updated in real time by warehouse workers using barcode scanners.
There are some challenges associated with perpetual inventory systems. First, these systems cannot be maintained manually and require specialized equipment and software that results in a higher cost of implementation, especially for businesses with multiple locations or warehouses. Periodic maintenance and upgrades are necessary for periodic inventory systems, which also can become costly. Another challenge of using a perpetual inventory system is that recorded inventory may not reflect actual inventory as time goes by because they do not use regular physical inventory counts. The result is that errors, stolen items, and improperly scanned items impact the recorded inventory records and cause them not to match actual inventory counts.

Periodic Inventory System

Periodic inventory systems do not track inventory on a daily basis; rather, they allow organizations to know the beginning and ending inventory levels during a certain period of time. These types of inventory control systems track inventory using physical inventory counts. When physical inventory is complete, the balance in the purchases account shifts into the inventory account and is adjusted to match the cost of the ending inventory. Organizations may choose whether to calculate the cost of ending inventory using LIFO or FIFO inventory accounting methods or another method; keep in mind that beginning inventory is the previous period’s ending inventory.
There are a few disadvantages of using a periodic inventory system. First, when physical inventory counts are being completed, normal business activities nearly become suspended. As a result, workers may hurry through their physical counts because of time constraints. Errors and fraud may be more prevalent when you implement a periodic inventory system because there is no continuous control over inventory. It also becomes more difficult to identify where discrepancies in inventory counts occur when using a periodic inventory control system because so much time passes between counts. The amount of labor that is required for periodic inventory control systems make them better suited to smaller businesses.

Barcode Inventory Systems

Inventory management systems using barcode technology are more accurate and efficient than those using manual processes. When used as part of an overall inventory control system, barcode systems update inventory levels automatically when workers scan them with a barcode scanner or mobile device. The benefits of using barcoding in your inventory management processes are barcode scannernumerous and include:

  • Accurate records of all inventory transactions
  • Eliminating time-consuming data errors that occur frequently with manual or paper systems
  • Eliminating manual data entry mistakes
  • Ease and speed of scanning
  • Updates on-hand inventory automatically
  • Record transaction histories and easily determine minimum levels and reorder quantities
  • Streamline documentation and reporting
  • Rapid return on investment (ROI)
  • Facilitate the movement of inventory within warehouses and between multiple locations and from receiving to picking, packing, and shipping

Radio Frequency Identification (RFID) Inventory Systems

Radio frequency identification (RFID) inventory systems use active and passive technology to manage inventory movements. Active RFID technology uses fixed tag readers throughout the warehouse; RFID tags pass the reader, and the movement is recorded in the inventory management software. For this reason, active systems work best for organizations that require real-time inventory tracking or where inventory security has been an issue. Passive RFID technology, on the other hand, requires the use of handheld readers to monitor inventory movement. When a tag is read, the data is recorded by the inventory management software. RFID technology has a reading range of approximately 40 feet with passive technology and 300 feet with active technology.
RFID inventory management systems have some associated challenges. First, RFID tags are far more expensive than barcode labels; thus, they typically are used for higher value goods. RFID tags also have been known to have interference issues, especially when tags are used in environments with a lot of metal or liquids. It also costs a great deal to transition to RFID equipment, and your suppliers, customers, and transportation companies need to have the required equipment as well. Additionally, RFID tags carry more data than barcode labels, which means your system and servers can become bogged down with too much information.
When choosing an inventory control system for your organization, you first should decide whether a perpetual inventory system or periodic inventory system is best suited to your needs. Then, choose a barcode system or RFID system to use in conjunction with your inventory control system for a complete solution that will enable you to have visibility into your inventory for improved accuracy in scanning, tracking, recording, and reporting inventory movement.
Images via Pixabay by icondigital and Flickr by Naval Surface Warriors

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