Small businesses that sell products must have an effective inventory system in place to make it easy to keep track of how each product enters and leaves the storage area. Poorly designed systems easily can lead to massive losses in sales and profits because of lost or stolen items and late deliveries. A basic inventory system has a few main components.
Basic inventory systems are designed for small- to medium-sized businesses whose financial and logistical situations might prohibit them from implementing a more costly inventory solution. These types of systems might use technology used in larger operations, but most often utilize simple spreadsheets or similar methods to record the desired information about each unit. Basic inventory systems often lack integration with other departments such as accounting, which makes it necessary to combine the data manually. The two most basic methods of inventory are the periodic and the perpetual systems of inventory.
Periodic Inventory System
The periodic inventory system is common in small businesses. A simple accounting system, such as a spreadsheet, keeps track of all incoming shipments, sales, returns and other inventory related information for a specific time period. Many small businesses work on a monthly schedule, but this system may be used on a weekly, quarterly or yearly scale depending on the logistical capabilities of the company. At the designated time, a physical count of the stock is conducted and the actual levels are compared to the projected levels as indicated on the spreadsheet or computer program.
Perpetual Inventory System
As the name suggests, a perpetual inventory system records all transactions to the inventory account as they occur. The inventory levels always reflect the actual amount of stock on hand at any given moment. This type of system requires a larger initial investment than a periodic inventory system because it makes use of technology such as bar-code scanners to integrate the stockroom with the point of sale or shipment. Each unit is scanned and that information automatically updates the stock levels and other stock information, eliminating the need for a physical count of the inventory. However, many companies still choose to perform a physical count on a yearly basis just to verify the data.
The basic inventory system focuses on three main tasks: reception, maintenance and issuing. When the stock first arrives, it is received and processed according to the chosen system of control. This includes recording important data such as the name, quantity, part number and product code. During the time that each unit remains in stock, the company performs stock maintenance duties such as stock-level reports and physical counts. When each unit is sold or shipped, the person who issued the unit, the unit's destination and the resulting stock level are all recorded in the basic inventory system.