Question

Describe the strengths and weakness of fixed period system (FPS)

Answer 1

Fixed Period System

The fixed period inventory system can be seen as a fundamental inventory model which is commonly known as a periodic inventory system. In this model of inventory control, there is a requirement of only updating the inventory balance while performing the actual physical count of the inventory. Despite the organization have a limited number of products in its inventory, physical counting really takes a lot of time. Greater the product mix sold; greater will be the quantities and thus more complex to have physical count. Thus in order to avoid this, majority of the organization performs a physical count of the inventory once a year or once a quarter. This is the main reason why this model is termed as “fixed period” or “periodic” system

Strengths:-

There are greater chances of enjoying the benefits of quantity discounts from the supplier due to a bulk order placing.

It is possible to combine the different order to minimize the total shipping cost

There can be a reduced ordering cost as lesser orders are placed at all of the items might be placed to a single supplier

It is possible to have the entire system to be automated for automatic order fulfillment

The normal activities of the organization are not restricted regularly as the counting of the inventory is done at the end of a period

This system is relatively cheaper in comparison to other systems

Weaknesses:-

Whenever the counting of inventory takes place, it hampers the entire business activities of the company

Due to limited time, the counting has to be completed in a hurry

There is a greater chance of fraud in this system as there is an absence of regular control of the inventory

The stock control device is quite limited in its operation and thus there is a chance of corruption from manpower.