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Periodic inventory systems are typically used by businesses that sell a low volume of items and don’t require a highly accurate picture of their inventory levels. Working out the Cost of Goods Sold (COGS) using the periodic inventory system is very straightforward and looks like this:ĬOGS = Beginning Inventory + Inventory Purchases – Ending Inventory Instead, all inventory is counted physically by hand and manually recorded in journal entries. The system does not require inventory management software. This can be on a weekly, monthly, quarterly, or annual basis. Instead of tracking inventory on a daily basis, a periodic inventory system tracks inventory at the end of an accounting period. Small businesses can use a combination of systems depending on the business type, operation, and size. Inventory control also means tracking movement to help identify under-performing products to prevent you from ordering and storing stock you don't need, and, likewise, identifying fast-selling products that require more frequent replenishment so you don't run out.Īlthough there are four main types of inventory management systems, they’re not mutually exclusive. Inventory management is different from inventory control, which focuses more on the processes involved in purchasing, shipping, and storing inventory. It can also involve processes such as optimizing warehouse layouts and identifying redundant inventory. It encompasses making sure the right levels and quantities of stock are available at the right time and in the correct locations. Inventory management refers to how a business manages its current stock, including how it tracks and manages the number of products as they move in, across, and out of the business. In this article, we’ll go through four inventory management systems that small businesses can use to make sure they don’t meet the same fate as my first employer. The moral of the story? A good inventory management system is truly the backbone of a successful business. The store no longer exists, but the memory of terrible inventory management lives on. Of course, the store’s headquarters regularly complained that the numbers didn’t add up and that we’d need to recount all of the current stock. That was until I was presented with a clipboard of paper and a pen and told to count thousands of pieces of inventory - by hand. on the last Saturday of every month to help count the store’s inventory.Īt first, I was pretty excited to be involved in such a “grown-up” task, and I envisioned myself scanning barcodes and being in charge of my own section. At the age of 16, I was told that I would be required to stay until 10 p.m. One of my first jobs was as a sales assistant in a small clothing store in my hometown.