Perpetual versus Periodic Inventory Systems.Describe the perpetual and the periodic inventory systems. How are they different? Are there circumstances in which one system is better than the other? Include real-life examples. Your initial post should be 200-250 words.Guided Response: Respond to at least two of your classmates’ posts. Rationalize or challenge opinions of others. Include alternate opinions, ideas, and/or additional aspects and considerations.———————————1. Sandra.Organizations keep track of their raw material and inventory purchased, returned, and issued using an inventory record system. Organizations use perpetual or periodic inventory systems to update inventory records.Perpetual Inventory SystemA perpetual inventory system continuously tracks inventory as it moves in out and through an organization. A perpetual inventory system tracks every movement of inventory (Vonderembse & White, 2013). No operation stoppage is required, as the perpetual method tracks inventory continuously.Periodic Inventory SystemA Periodic inventory system updates the inventory records at periodic intervals. The periodic inventory method requires a physical count of all inventory and requires a work stoppage to conduct the inventory record update. A disadvantage of the periodic inventory system is that it includes lost and stolen goods in the cost of goods sold (Edmonds & Edmonds, 1997). If the periodic interval is more than once a year, the cost can be greater due to additional operational downtime.DifferencesThere are several differences between the two inventory systems. Periodic inventory is based on physical verification of the inventory while perpetual inventory uses a real-time recording of inventory movement. The perpetual inventory system provides real-time inventory and cost of sales, while the periodic inventory system maintains data on inventory and cost of goods sold. Periodic inventory requires a shutdown to count inventory where perpetual does not (Vonderembse & White, 2013). The perpetual method includes only the units sold in determining the cost of goods, while the periodic method includes the cost of lost, damaged, and stolen inventory.Common UsesAccording to Edmonds & Edmonds (1997), the periodic system is used more by merchandisers and the perpetual system primarily for manufactures. Manufacturers need to track raw material to ensure part availability to produce finished goods. The perpetual inventory system provides a better ability to manage all of the inventory needed to ensure the material is available as needed without excess.ReferencesEdmonds, C. D., & Edmonds, T. P. (1997). Educational idealism: One more reason to stress the perpetual. Journal of Education for Business, 72(4), 217. https://doi.org/10.1080/08832323.1997.10116858 (Links to an external site.)Vonderembse, M. A., & White, G. P. (2013). Operations management [Electronic version]. https://content.ashford.edu/—————————2. Ramanjeet.One of the primary objectives of the inventory management system is to optimize inventory. Inventory optimization means maintaining a correct level of inventory to eliminate stockout situations at a minimal inventory holding costs. A perpetual inventory system, also called a continuous review system, monitors the inventory continuously by linking the physical inventory count with any sales or purchase of items. The system is mostly computerized, executed in realtime, and utilizes tracking barcodes for system integration. Once the inventory reaches the minimum threshold level, it is replenished automatically, usually by fixed amounts (Vonderembse & White, 2013). On the other hand, the periodic inventory systems, also called fixed order interval system, monitor inventory at a specific interval such as monthly or weekly, which usually aligns with the physical inventory cycle counts and supplier’s order window. These intervals are called review intervals and must replenish sufficiently to cover demand until the next interval to avoid stockouts (Vonderembse & White, 2013).DifferencesThe perpetual inventory system based on the concept of order point, a fixed quantity that determines the minimum level of inventory to trigger replenishment, considering the lead times and safety stocks. On the other hand, periodic inventory systems are based on the concept of Order-Up-to level, which determines how much quantity to order depending upon the current on-hand details at the time of review. The quantity could vary during each review interval and must increase inventory to a level sufficient to cover anticipated demand before the next order is received (Vonderembse & White, 2013).Another difference between continuous and periodic review systems is the frequency of replenishment cycles. In a perpetual system, inventory stock is continuously reviewed, and orders are placed as soon as the order point is reached. Whereas, in the periodic system, once the order is placed at the review point, inventory is not checked until the next review point.Choosing Among the two SystemsPeriodic inventory system makes more practical sense in the case of small businesses with budget limitations or those with low volume sales like car dealerships or luxury brand retailers. Due to the low sales volume, inventory could be tracked and consolidated easily on a periodic basis. However, for high sales volume businesses like retail outlets, groceries, or pharmacies, it is critical to make timely replenishment decisions based on more frequent tracking.Another aspect is the nature of the business. For instance, stores like Target and Walmart, which maintain both brick-and-mortar facilities along with a web-based retailing, require perpetual inventory systems to update inventory stock in the realtime. This allows its customers to check store availability and either visit the store for pick up or order online, depending on the urgency. On the other hand, completely web-based businesses like Amazon might not require realtime inventory insight due to the time cushion between the date order is placed and the promised delivery date. However, to meet their service level commitments like single day delivery, they might conditionally need a perpetual inventory setup for selected items.According to Blackstone and Cox (1985), the perpetual inventory model is based on assumptions that items are independent and do not require joint replenishment and that their average demand is constant over a period. Thus, products with fluctuating demand are better suited for periodic replenishments where Order Up-to levels could be adjusted to meet the ongoing demands.ReferencesBlackstone, J. H., & Cox, J. F. (1985). Inventory Management Techniques. Journal of Small Business Management, 23(2), 27–33. http://search.ebscohost.com.proxy-library.ashford.edu/login.aspx?direct=true&db=bsh&AN=5268863&site=eds-live&scope=site (Links to an external site.)Vonderembse, M. A., & White, G. P. (2013). Operations management. Retrieved from https://content.ashford.edu/————————————Required ResourcesTextVonderembse, M. A., & White, G. P. (2013). Operations management [Electronic version]. Retrieved from https://content.ashford.edu/• Chapter 9: Planning for Material and Resource Requirements• Chapter 10: Inventory ManagementRecommended ResourcesMultimediaJuly, E. (Producer) & Rodrigo, J. M. (Director). (2003). Business is blooming: The international floral industry (Links to an external site.) [Video file]. Retrieved from the Films On Demand database.• Watch the following segments:o Night Delivery Systemhttps://fod.infobase.com/p_ViewVideo.aspx?xtid=34961SAP. (2013). SAP business management software solutions (Links to an external site.) [Video file]. Retrieved from http://www.sap.com/demos/mmov/presentation_2.htm?swf_Location=MMOV_Player_1_14.swf&xml_Location=MMOV_B1_MM1.xml&swf_height=450&swf_width=660
