Merchandising Operations

Advantages of perpetual inventory system

1. Provides continuous inventory accounts

2. Provides continuous information that is key to maintaining the levels of inventory

3. Provides continuous information about the amount or quantity of goods at hand

4. Provides cost of goods sold without necessarily having to take a periodic inventory count.

Disadvantages of perpetual inventory systems

1. Requires the maintenance of a separate inventory record for each type of goods stocked.

2. Requires more clerical efforts due to the number of transactions necessary to update.

Advantages of periodic inventory system

1. All stock items are reviewed periodically eliminating the likeliness of having obsolete stock

2. Likeliness to get large discounts during the ordering of stock from suppliers

3. Economies from placing orders may be gained.

Disadvantages of periodic inventory system

1. Difficulty in setting appropriate periods for review of stock when demand is not consistent

2. Less responsive to consumption changes.

The use of a perpetual inventory system is much better than that of the periodic system that you currently use. Take for instance the problems that you normally have when demand fluctuates, you are not sure when to review stock and when to reorder. This can be solved by having the perpetual inventory system where you get to have continuous inventory accounts. Am sure you also have a problem of tracking products and by the time you do a review, some of them may have been long gone and the culprits vanished. Take for example one of your workers steels some merchandise and a week after, resigns from duty. It will take you three more weeks to discover the issue if you do your reviews monthly. But if you had a perpetual inventory system, it will only be a matter of hours for you to realize and deal with the problem. Thus I believe that a perpetual inventory system is more appropriate for you.