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Types of Inventory Control Systems

Inventory control systems play a key role in the success of an organization's ongoing inventory management program. For supply chain professionals, inventory control helps guide better decisions about resources, components, maintenance and more. But it's important to understand the different types of inventory control systems to choose the one that best supports the operations of your specific organization.

Types of inventory control systems

Before implementing an inventory control system, consider what each can offer and how the chosen type will affect your operational activities.

Periodic inventory systems

A good fit for companies that manage smaller inventory levels, periodic inventory systems involve manually counting inventory at set intervals such as quarterly, annually or somewhere in between.

Periodic inventory systems
Perpetual inventory systems

If your organization handles larger volumes, a perpetual inventory system offers a better way to keep track on an ongoing basis. This tool uses automation to track inventory levels in near-real-time.

Perpetual inventory systems

Periodic inventory system

The design of the periodic inventory system is fairly straightforward: Only when a physical count is conducted can the system or ledger be updated. In most cases, organizations that use a periodic system will conduct these manual counts at set intervals that coincide with specific business activities. For some, this might be every month, while others may choose to begin each new year with a fresh count.

Pros of periodic inventory

One of the main benefits of using periodic inventory systems is that they are very easy to manage for smaller quantities. Counting — even when done manually — is relatively simple, and there isn't any software to cause confusion. Training new employees is also fairly straightforward and can be done quickly so that resources aren't spread too thin for too long.

Cons of periodic inventory

Unfortunately, periodic inventory systems aren't a great fit for larger organizations that deal with high inventory levels. Manually counting inventory can be an extremely lengthy process in this scenario, and the potential for human error is high. In addition, there is no way to accurately estimate levels during interim periods; the only way to be sure (for a short time) is to conduct counts more frequently.

Who should use periodic inventory?

Organizations with lower counts, niche products, larger products and potentially higher-ticket products would see a more substantial benefit for their inventory management by using this type of inventory control system. These conditions may make it easier to count manually compared to organizations dealing with larger quantities that move quickly.

Periodic inventory system

Perpetual inventory system

Of the two types of inventory control systems, perpetual uses software and automation to continuously track inventory levels as they change. Items are tracked constantly, and information is stored in a central database for simplified reporting, auditing and more.

Pros of perpetual inventory

Perpetual inventory systems don't require any manual counting, so resources can be better managed to keep costs down. It's also easy to view and understand exact quantities at any interval, as the software tracks the movement of each asset. This means that organizations can access insights whenever they need to in order to assist with ordering and replenishment, sales, discounts and clearance, and their inventory management as a whole.

Cons of perpetual inventory

One of the most common disadvantages of a perpetual inventory control system is the cost. The software required to manage each item can be expensive, and it isn't foolproof. Loss, theft, scanning errors and damage can cause discrepancies that the software isn't able to track, meaning that inaccurate inventory levels may go unnoticed.

Perpetual inventory system

Choose the right system for your organization

Implementing the right system can have a hugely positive impact on your organization’s inventory management, but it isn't always clear which system offers the greatest benefit. Furthermore, expert training for employees is critical to an effective system. Prepare your people for inventory control success with the APICS Certified in Planning and Inventory Management (CPIM) designation, which will enable them to select the appropriate system and understand how to align its capabilities with business goals. From identifying potential problems and risks to helping provide the resources for outlining replenishment policies, a CPIM professional can help guide your organization to the best possible solution.

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