Inventory management systems have appeared as a prime and healthy choice for inventory management of businesses of all sizes, large to small. As a business grows, with an increased number of items in its inventory, its management gets more complicated. Therefore proper and well-evolved inventory management is the need of the hour.
As the automation market and its popularity grew, the trend of using inventory management software for inventory management also picked up speed. Today it’s not possible for any business to grow without using these systems for their inventories. At present, there are many types of inventory management systems available for you to choose from. Each of them offers distinct advantages of its own.
Let’s take a look at the most used inventory management systems present in the market and the perks they offer.
#1 Periodic inventory system
A periodic inventory system supports a stock accounting and valuation process in which the inventory account is updated at definite intervals. These intervals can range from monthly, quarterly to yearly. In other words, we can say that these systems don’t track inventory regularly.
A periodic inventory system makes no effort to maintain real-time records of stock and the cost of goods sold(COGS). COGS is defined as the direct Cost of Goods sold. It only includes the cost of material and labor used to manufacture the goods. To calculate the amount at the chosen intervals, the staff performs a physical count of stock. This physical count represents the total amount of inventory that is present in the balance sheet. For evaluating COGS sold under the prescribed interval, the following formula is used:
COGS = (Inventory at the starting period) + (Total purchase during the accounting interval) – (Inventory at the end of accounting interval)
Periodic systems are most suitable for small businesses and businesses with lower stock-keeping units(SKUs) and simple supply chains. The most important advantage of this system is that it is easy to use and cost-effective. Also, implementing and aligning the periodic inventory system with the present business model is hassle-free as this system doesn’t require any special types of equipment.
#2 Perpetual inventory system
A perpetual inventory system records the real-time sales or purchase of goods and other materials by using technology. This method is considered more efficient than the periodic inventory systems as they maintain the real-time records of every sale and purchase. The system provides a detailed and accurate view of changes taking place in inventory and therefore enables real-time tracking of the total stock present.
Perpetual inventory systems are wholly dependent on technologies such as barcode scanners, RFID(Radio-frequency identification) tags, and POS(Point-of-sales) machines to track and record the inventory. The system monitors the sale of products instantaneously by using the POS systems.
Perpetual inventory system tracks inventory balances regularly, and whenever a product is sold or purchased, the data is automatically updated. The cost of goods sold(COGS) is also routinely updated whenever a sale is made compared to periodic systems where the physical counts to measure COGS are occasionally performed. This helps reduce errors, thus maintaining accuracy in financial records and furnishing the stakeholders with accurate data regarding the profits made throughout the year. Perpetual systems are best suited for large businesses.
#3 Barcode inventory system
The Barcode inventory management system is emerging as an excellent tool for both small and large businesses for efficient inventory management and control. This system includes hardware, such as barcode scanners and printers and software that allows barcode scanning and other such operations. Every item and product has a unique barcode. The barcode generation process starts when all the items arriving in the inventory are listed manually in a spreadsheet. Once the spreadsheet is ready, it is imported to the software where the barcodes are generated and are printed using the barcode printer. These printed barcodes are further pasted on the items.
Using barcode scanners, the staff should scan each item available in the inventory, so that the record of every product gets registered. Whenever you move anything out of stock and scan it before its movement, the barcode system will automatically remove it from the list of items present in the inventory. This is how the organization can easily track everything that comes in or goes out of the warehouse.
The main advantage of this system is that by using the barcode of a particular product, you can track the quantity of that item in your multiple inventories present in different locations. Thus it allows you to manage the correct flow of items where needed. This system speeds up the process of shipping and receiving items in inventory and ensures accuracy in maintaining the record of what’s in hand.
#4 Radio Frequency Identification(RFID) Inventory Systems
RFID Inventory systems use RFID tags and a scanner, which further uses radio waves to detect or communicate with the RFID tag present in the product. The RFID tag contains a radio transponder. When the tag is actuated by an electromagnetic pulse from the nearest RFID reader, it transmits digital information, usually a batch id or any other identification number back to the reader.
Usually, RFID inventory systems use two types of technologies: active and passive, to track and manage items in the inventory. The use of handheld RFID readers to read and track the inventory items is a passive technology. Whereas in some inventories, fixed RFID tag readers are employed all over the warehouse. Whenever the item with the RFID tag passes any of these readers, the movement is recorded in the software. This technology of installing fixed readers to track the movement of items is known as Active technology. The active technology provides a long read range; therefore, it is reliable over long-distance uses and under challenging environments. At the same time, passive technology is preferred for indoor inventory tracking and is cheaper than the active technology.
RFID technology offers many advantages over the barcode systems, such as no line of sight requirements and scans the items a lot faster. Moreover, RFID systems enhance visibility across your supply chain, and the possibility of RFID tags wearing out is rare as it is made of plastic or hard shells, unlike the barcodes. Still, RFID inventory systems face some severe challenges due to their higher costs. This technology is often used for expensive or high-value goods because the RFID tags are costly when compared to the barcode labels.
Usually, Barcode systems or RFID systems are used in conjunction with the periodic inventory system or perpetual inventory system. This combo is considered more accurate rather than using any one independently.
A proper inventory management system is essential for businesses looking forward to reducing damages and additional costs resulting from inventory shrinkage, thefts, and deadstock. Out of many types of inventory management systems, choosing the appropriate method which is compatible with your business’s needs is a vital task. Based on your requirement, an inventory system can benefit you in several ways. These include reducing inventory shrinkages and fastening the processes, making the supply chain more visible, and boosting your revenue.
Author Bio- Hi There, I am Shaun Williams, a content writer with Goodfirms, a research platform for Cloud Computing, Ecommerce companies, Inventory management software companies, among many others. I enjoy communicating ideas and knowledge creatively and also ensure that the readers never suffer from boredom while reading my posts.