One thing is for sure, the importance of good inventory management is crucial.
In any case, being well organized will allow you to save costs and to better rethink your strategies when ordering.
To better help you, here are the different advantages and disadvantages of permanent, periodic, annual and rotating inventories.
What is a perpetual inventory?
Perpetual inventory is used to track the assets stored in an inventory in real time, to ensure better control of the inventory from the date of entry to the end of the item’s life cycle.
This allows you to keep an eye on the inventory at all times, in part through the use of automated software.
Automated software records important asset information, such as expiration dates, upgrade dates, license renewals, asset characteristics and also sends a reminder when an item is low on inventory or needs to be replaced.
Asset tracking is often possible using barcode scanners, which allow for 24/7 tracking of items.
The benefits of a perpetual inventory
The permanent inventory offers several advantages to companies, such as
- A global view of the inventory
- Easy access for all employees
- A fully automated system
- Reliable data to produce the accounting balance sheet
- A complete overview of the history and life cycle of assets
- Significant cost savings of inventory shortages
- Improves the image of the company, because the data between the warehouse inventory and the data for public viewing correspond
The disadvantages of perpetual inventory
Of course, each system also comes with its disadvantages, such as
- Additional costs
- Requires an automated inventory management system
What is an periodic inventory?
Periodic inventory also requires you to track inventory, but only at the end of each accounting period, so the movement of items does not have to be calculated on a regular basis.
A company can track its inventory only at the end of the accounting period.
This method of inventory management is therefore less frequent, because it is not possible to access the number of remaining stocks in real time, for example.
The advantages of an periodic inventory :
Periodic inventory also offers several advantages, such as:
- Simple to design
- Affordable for companies
- No need for automated inventory management software
The disadvantages of periodic inventory
Periodic inventory also has disadvantages, such as:
- A higher risk of error, because this type of inventory is often done manually
- The information and characteristics of the items in inventory are sometimes limited or completely absent
- Lack of precision
Knowing whether it is better to use perpetual or periodic inventory for your business depends on your business needs. For a company with few assets, periodic inventory may be sufficient.
However, it is still important to have a good plan of action to be able to have reliable results and avoid mistakes. The smaller the assets of your company, the more advisable it is to opt for periodic inventory.
For companies with large assets that represent a high financial value, it is advisable to choose the perpetual inventory option.
You can’t afford to have software errors and an automated system is probably your best option to achieve this. You will be able to have real time tracking and you will be able to use your inventory in an optimal way.
What is a rotating inventory?
With a rotating inventory, you need to count all the assets in your inventory on a periodic basis.
This means that you don’t have to count the entire inventory at once, but rather certain assets included in your inventory several times a year.
There are three ways to organize your rotating inventory cycles: monthly, quarterly or annually.
The advantages of a rotating inventory
Like any other type of inventory, this type of inventory also has several advantages, for example
- It is a simple technique to use and easy to set up
- It is easier to identify dormant, excess or restock inventory
- It’s a continuously rolling inventory
- It is possible to add an automated system to help with turnaround balances when a company has multiple assets
- It is less expensive than an periodic or permanent inventory
Disadvantages of a rotating inventory
Once again, rotating inventories have some minor drawbacks, such as
- It is necessary to be assiduous regarding the rotation cycles
- It is necessary to have a good knowledge of the inventory in order to determine which items should be counted at which period according to the cycle of rotation chosen by the company.
What is annual inventory?
This inventory is carried out only at the end of the accounting period and allows to give exactly the total value of the items in stock which must appear on the accounting balance sheet.
The advantages of annual inventory
Here are some advantages of annual inventory:
- Allows you to know with certainty what items are in inventory so that you can rethink your strategies
- Allows you to facilitate the process of producing a balance sheet
The disadvantages of annual inventory
Here are some disadvantages of annual inventory:
- May sometimes require the expertise of an external consultant to ensure that all assets are properly calculated
- It is very lengthy to perform, as the inventory is done throughout the year, the risk of errors is higher
- May be more expensive, as all activity in the company must come to a halt to allow for the counting and verification.
- Requires effective organization within the company
Hector to help you choose your type of inventory
Hector can easily help you better manage your inventory. With its automated and affordable system, you can’t go wrong.
With our inventory management software, you can access the characteristics of every asset in your inventory, anytime you want!
You will also be able to see the history of each item, to seamlessly proceed to calculate your balance sheet at the end of the year.
This will save you a lot of time and money. Moreover, Hector is very simple to use and very easy to install. In only a few days, all your employees will be able to use the software easily.
Does your company want to implement a perpetual inventory system, but doesn’t have the resources to do so? Contact our team today, and we will be happy to advise you further!
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