Question

Think about the types of inventory systems used in business?

Now that you selected the inventory, briefly describe a business you would like to own or run, and choose the best inventory system for that business?

State why you made your choice as you did by stating advantages and disadvantages.

Answer 1

There are three inventory system used in business:

1. Manual Inventory System
2. Periodic Inventory System
3. Perpetual Inventory System

For big businesses, Perpetual Inventory System is best suited. Those businesses which have multiple locations, deals in expensive products or an electrinic store prefers perpetual inventory system. There are many advantages of perpetual inventory system :

• Helps in preventing stock out,(Dstock out means product running out of stock)
• Better accuracy as each inventory item will be recorded in separate ledger
• Business owners can get valuable information such as purchases, purchase returmns and discounts easily.
• Reduces hectic work of physical inventory count as regular inventory count is done.

In addition to advantages, there are certain disadvantages also :

• High set up cost - As more new equipments to be purchased and inventory software to be set, this results in increased cost.
• Training for New Equipments - It is another disadvantage of perpetual inventory system. When new equipments are installed, more training to emplopyees is required for better management.
• Increased Monitorig - There will be need for increased monitoring. Employees can make mistakes in entering quantities and scanning inventory items, this requires regular and close monitoring.