Physical stores and eCommerce sites alike need well-stocked shelves and reliable delivery services to keep customers happy. Your company must maintain efficient business operations and sustainable finances to meet these needs, and proper inventory management plays a critical role.
Of the various inventory-tracking strategies available, the periodic inventory system is one of the most simple and widely used solutions. Paired with comprehensive and flexible inventory management software like Fishbowl, your team will have everything they need to streamline production and delivery processes while effectively balancing finances.
What’s a periodic inventory system?
A periodic inventory system is an evaluation method that involves performing a physical stock count at specific intervals, such as quarterly, bi-annually, or annually. Under a periodic inventory system, you don’t perpetually update records. Instead, you record your cost of goods sold (COGS) when the designated period ends.
After the physical stock count, you’ll track how much inventory you have on hand at the beginning of your chosen period and recount at the end. You’ll also add new purchases during the period to your count and deduct ending inventory to determine your COGS.
This periodic approach makes item tracking simpler and often more cost-effective, particularly if your business is small or has a low transaction volume. Conversely, if your inventory constantly changes, you may be better off using a perpetual inventory accounting system, which continuously tracks stock.
But no matter your inventory-tracking methodology, your framework must integrate with other business operations. Doing so provides a more holistic view of company performance. For instance, using a centralized inventory tracking platform that also showcases process maps and project resource requirements makes it easier to identify lagging lead times and resourcing gaps.
What are the advantages of a periodic inventory system?
Adopting a periodic inventory-tracking method to monitor raw materials, in-progress items, and finished products offers the following benefits.
Simple and cheap to implement
A periodic inventory accounting system requires less sophisticated — and often less expensive — accounting and inventory software. You won’t have to break the bank to implement it, and you can keep up with your COGS at the most suitable intervals for your team.
Typically, businesses will report COGS annually or bi-annually, and monthly or quarterly reporting is less common but still a viable option. Even a monthly approach provides significant cost savings compared to perpetual systems, which are sophisticated and expensive to implement.
Easy for record-keeping purposes
Since inventory record updates are periodic, you won’t have to track every transaction in real time. This cadence can reduce the administrative burden on your team and simplify the accounting process.
Running a small business requires you to wear many hats — and when juggling numerous responsibilities, cutting down on redundant tasks is critical to success. This system helps you maintain accurate and relevant records without the burden of perpetual reporting.
Ideal for smaller businesses
If you have limited inventory or sell non-perishable products, the periodic inventory system might be ideal due to its simplicity and cost-efficiency. The system offers some degree of customization. Let’s say you adopt the method and initially perform inventory reporting bi-annually. As you scale, you can tailor your reporting intervals based on current needs and business growth, maximizing the usefulness of your periodic inventory system.
Compatible with normal operations
With the inventory count typically occurring outside of business hours or during quieter periods, there’s minimal disruption to your day-to-day operations. For instance, you could conduct your quarterly inventory count on a Saturday morning, after you close for the day on a Friday evening, or in the lull after a big holiday boom. Periodic inventory systems are adaptable to your needs, so you can always conduct the counts on your terms to minimize the impact on your core business processes.
To maximize the periodic approach’s positive effects on your business, it’s vital to support your inventory strategy with modern software. Leading platforms automate key inventory-tracking operations and provide timely, relevant insights about factors like performance, revenue, and costs.
Periodic versus perpetual inventory systems
Here are a few critical differences between perpetual versus periodic inventory systems worth considering before selecting a framework for your team.
Update frequency
Periodic inventory systems update stock records at set intervals, while perpetual inventory systems conduct this continuously. As a result, the former type doesn’t offer real-time visibility into your inventory or COGS, while the latter type does.
Let’s say you’re using the periodic system and conducting quarterly reviews. Your documented stock levels will starkly differ from your actual levels two and a half months into the quarterly reporting cycle. Due to this discrepancy, you could be at a greater risk of a stock out, especially if you experienced an unexpected surge in sales this quarter.
Technology use
Perpetual inventory systems generally require more advanced technology and integration between sales and inventory systems. Your point-of-sale (POS) software must exchange information and communicate with your inventory-tracking platform to maintain a real-time stock count.
Conversely, periodic systems can rely on entirely manual processes, including hand counts of inventory. But you can also use software to track and update stock counts and run COGS calculations.
Accuracy and visibility
Perpetual inventory provides real-time accuracy and visibility, which is crucial if you need up-to-the-minute stock information. You don’t have to guess whether your inventory can get you through the next sales cycle — with the touch of a button, you can check and determine whether it’s time to restock.
Improving accuracy and visibility can give you much-needed confidence and guide reordering decisions. And you can avoid overstocking while safeguarding against shortages, ensuring you have enough goods on hand to serve your customers.
Cost and complexity
The periodic system is less expensive and easier to adopt than others, especially if you rely on manual inventory counts. You can implement this system without specialized tracking software, but this opens the door to human error. That’s why many businesses support their periodic tracking strategies with scalable software.
Conversely, the perpetual system is somewhat costly and complex to roll out, but it offers exceptional detail and inventory control.
How and when to use a perpetual inventory system
The perpetual inventory system continuously updates inventory records for every transaction that affects inventory, be it a sale, return, or new stock receipt. This approach relies on technology like barcode scanners and inventory management software to track stock levels in real-time. Because of this complexity, a perpetual system is ideal if you have a high transaction volume, where real-time item tracking is crucial for operations.
For instance, the perpetual system might be best if you’re a retailer that processes sales via physical stores and eCommerce channels. It provides immediate visibility into your stock levels, letting you reduce stockouts and improve customer satisfaction with timely deliveries.
Taking this approach requires a robust inventory management solution. Look for a warehouse inventory management software that offers features like real-time updates, precise stock tracking, and advanced reporting.
Enjoy inventory-tracking precision with Fishbowl
Whether you opt for a periodic or perpetual system, implementation success hinges on having the right tools at your disposal.
Enter Fishbowl, the scalable and economical inventory management solution for small to mid-sized businesses. With Fishbowl, you can control stock, warehouse operations, sales, transactions, and manufacturing processes — all from one user-friendly platform.
Want to achieve peace of mind across your operations? Explore our real-time inventory management software and take the guesswork out of stock management.