The Disadvantages of a Periodic Inventory System: By Wanda Thibodeaux, eHow Contributor (Inventory workers may need to find ways

to minimize the disadvantages of a periodic system.) A company can keep track of its inventory in two main ways. One way is to track inventory continuously, updating stock records every time a sale happens. This is known as a perpetual inventory system. The alternative is a periodic inventory system, where administrators or other employees update records only after a specific period of time. The periodic inventory system has some disadvantages. GAPS IN TOTAL INVENTORY VALUE: Every piece of stock has some value, but without a constantly updating count, the inventory worker can't determine the total value until the scheduled inventory check. This makes it difficult for the company to budget and assess revenue except around the times for inventory checks. It also can be a problem if the company experiences a disaster such as fire or huge theft and needs to file an insurance claim to replace the stock.

Lack of Constantly Updated Movement Record: In a perpetual inventory system, inventory records get updated every time there is a sale. This makes it possible to identify quickly how, when and where the inventory moved from the sale floor or warehouse. In a periodic system, this doesn't happen. The inventory worker may not know where specific pieces of inventory went or to whom they were sold between inventory reviews. Not Ideal for Expensive Items: Periodic inventory systems operate on the concept that, if a low-value item is lost or stolen, the inventory owner doesn't take a huge financial hit. In other words, periodic systems are used when the inventory owner can afford to lose a few pieces of stock. This type of system becomes impractical for expensive items like appliances and cars because the financial loss to the inventory owner can be much greater. Looser Stock Control: Knowing the exact location, value and type of every piece of stock permits a worker to have much more control over the inventory. For example, if an inventory worker knows that an employer wants to keep a minimum of 50 hats in stock, and if he also knows that 25 hats are left, then he knows he has to order 25 hats to meet the employer's requests. In a periodic system, this control is lost because of the lack of an up-to-date, solid inventory count.

Read more: The Disadvantages of a Periodic Inventory System | eHow.com http://www.ehow.com/list_6689460_disadvantages-periodic-inventory-system.html#ixzz1puPYxIrp

Disadvantages to a Perpetual Inventory System: By Kathy Adams McIntosh, eHow Contributor

Businesses choose between perpetual and periodic inventory systems. Many businesses opt to implement a perpetual inventory system because it allows the business owner and employees access to real time inventory quantities and values. A perpetual inventory system also comes with some disadvantages. Higher Cost Investment One disadvantage of a perpetual inventory system involves the setup cost. Most systems require the purchase of new equipment and inventory software. This equipment includes point of sale scanners which read the bar code of each item. Scanners are also required when items are received into inventory. Perpetual inventory systems also add to labor costs since all inventory must be entered into the system. Training on Equipment Another disadvantage to implementing a perpetual inventory system involves the increased level of training required. Employees need to know how to operate the various scanning equipment. Accounting personnel need training to navigate the inventory system. False Reliability Perpetual inventory systems can be misleading when reviewing inventory levels. Employees can make mistakes entering quantities or scanning the wrong inventory item. Shoplifters may steal merchandise. Increased Monitoring The need for increased monitoring because of employee errors or customer theft requires an additional financial investment. Security monitors typically need to be installed and some companies hire security personnel.

ADVANTAGES 1.All stock items are reviewed periodically so that there is likely to be less obsolete stocks. 2.Economies in placing orders may be gained by spreading the purchased office load more evenly. 3.Larger quantity discounts may be obtained when a range of stock items are ordered at the same time from a supplier. 4.Because orders will always be in the same sequence, there may be production economies due to more efficient production planning being possible and lower set uo costs.

DISADVANTAGES 1.In general larger stocks are required, as re-order quantities must take account of the period between reviews as well as lead times. 2.Re-order quantities are not at optimum level of a correctly calculated EOQ. 3.Less responsive to changes in consumption. If the rate of usage change shortly after a review, a stock-out may well occur before the next review. 4.Unless demands are reasonably consistent, it is difficult to set appropriate periods for review.

THREATS: Cultural differences e.g., some cultures consider the payment of an incentive to help trading is absolutely lawful. Lack of knowledge of overseas markets Language barriers. Inclination to corrupt business associates Legal protection for breach of contract or non-payment is low Effects of unpredictable business environment and fluctuating exchange rates Sovereign risk - the ability of the government of a country to pay off its debts Natural risk due to the various kinds natural catastrophes, which cannot be controlled.