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Types of Inventory Control Systems

Posted by Jerad Dowler on Mon, May 11, 2015

In business, an inventory control system is a system that integrates all aspects of administering a company’s inventories including shipping, purchasing, receiving, warehouse storage, turnover, tracking, and re-ordering. These systems often differ based on the type of business being run. From stretch film packaging to warehouses to manufacturing, and even small businesses, inventory control systems are unique tools that help you measure and balance your operations.

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Today, there are various types of inventory control systems to help you track and keep your inventory at hand. Here are the two main types of inventory control systems that you could consider using. The main difference between the two is how often inventory data is updated.

 

Perpetual Inventory System
The perpetual inventory system is by far the most favored method of tracking inventory in stretch film packaging. In this system, inventory data is entered perpetually or continuously. Once an order is placed or received, the data is updated into the system right away. Compared to the periodic inventory system, a perpetual inventory system is superior because it allows real-time tracking of sales in addition to monitoring individual inventory levels for each item.

However, the calculated inventory levels obtained from a perpetual inventory system may steadily deviate from the actual inventory levels due to theft or unrecorded transactions. It is therefore vital to periodically compare the physical inventories to the actual on-hand quantities and adjust accordingly.

 

Periodic Inventory System
In this system, inventory data is not kept consistently up to date. Instead, inventory information is updated after a particular interval of time (usually once a year). Although this method is not as efficient as the perpetual system, it appeals to many people because you do not have to expend as much cash upfront to set up the technology and software needed to keep track of data.

One major shortcoming with this system is that for the entire year, you do not have access to inventory data. For stretch film packaging business, this system can prove humongous especially when there is an increase in sales.

 

Valuation Methods
After selecting between one of the two methods, value your inventory. The following inventory three methods are used to compute the cost of goods sold and the cost of ending inventory.

inventory_ResizeFirst-in-First-Out Method (FIFO)
Under FIFO, it is assumed that the oldest inventory items are recorded as sold first, and newer inventory remains unsold. This implies that the cost of older inventory/stock is allocated to cost of goods sold, and that of fresh inventory is allocated to ending inventory.

 

Last-in-First-Out Method (LIFO)
This method is almost the exact opposite of FIFO. Under LIFO, it is assumed that the last items recorded in the inventory are the first to be sold. However, the inventory is valued according to the cost of items purchased earlier in the year. When inflation occurs, LIFO can result in the highest estimate of cost of goods sold and the lowest net income.

 

Average Cost Method (AVCO)
Under this method, the average cost of all items available for sale during that particular period is taken to determine the cost of goods sold and ending inventory. If there is a rapid inventory turnover, AVCO can more closely be similar to FIFO than LIFO.

 

It is important to remember that the key decision in stretch film packaging is how much inventory to keep in hand. If you are not properly keeping track of your inventory, you are not maximizing your profit. Therefore, whatever your customer service requirements, Paragon Films is here to meet your needs for your stretch film packaging materials.

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Topics: warehouse inventory, stretch film inventory, FIFO, inventory management, LIFO

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