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What Are the Different Types of Inventory Procedures?

Food servce businesses, such as bakeries, use perpetual inventory procedures.
A man checking inventory.
Tracking inventory can help management make decisions based on customer demand.
Article Details
  • Written By: T. L. Childree
  • Edited By: Jacob Harkins
  • Last Modified Date: 22 September 2014
  • Copyright Protected:
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    Conjecture Corporation
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There are two basic types of inventory procedures — perpetual and periodic — used to keep track of the actual amount of products that a business has on hand. Picking a procedure that works for a specific business is key since inventory accounts for the whole of the products ait might sell. This can be one of the largest expenses for a business, and one of the most difficult to manage.

Accurate, up-to-date inventory information is needed to determine competitive selling price for products, also to schedule the purchase or production of new products to replace those that have already been sold. The two basic types of inventory procedures can be vital in accomplishing the management of this.

Perpetual-type inventory procedures often utilize point-of-sale scanning equipment that makes it possible for a business to record transactions in real time. Inventory procedures of this type usually provide a highly detailed record of each sale as it takes place. This type of inventory procedure is capable of keeping track of thousands of transactions in a single day of business. Although perpetual inventory procedures generally require a greater initial investment, the increased efficiency that it offers can often lead to greater profits.

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The up-to-the minute data that perpetual inventory procedures provide allows managers to monitor product supply levels and order additional stock as needed. It can also help retail businesses determine which products are selling well, and which items need to be moved by offering a reduced price or sale. A business that utilizes this type of inventory procedure must also conduct a periodic physical count of its products in order to reveal losses due to theft.

Periodic-type inventory procedures usually involve some type of complete physical count of products on hand at regularly scheduled intervals, which may be monthly, quarterly, or annually. In this type of procedure, the total number of products a business has in its inventory is physically counted at the end of each accounting period. Any products purchased during the subsequent period are added to this total. Another count is then made at the end of each subsequent period and deducted from the ending total of the previous period.

The volume of products that a business sells annually typically determines the frequency of these periodic inventory procedures. Since this type of inventory can be a time- and resource-consuming event, many businesses hire inventory services to provide the labor and automation needed to count inventory and shorten shutdown time. Inventory control software is also available to help hasten the process.

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