The perpetual system is generally more effective than the periodic inventory system. This is because the computer software used by companies makes it a no-intervention process that requires little or no effort. Products are barcoded and point-of-sale technology tracks these products from shelf to sale. More and more companies are using barcode scanners at points of sale.
In accordance with generally accepted accounting principles (GAAP), companies can choose to use a periodic or perpetual inventory system. Companies can choose to use a perpetual period periodic inventory system to calculate the cost of goods sold (COGS). A periodic inventory system calculates the COGS by following a physical inventory count at the end of the period, while a perpetual inventory system calculates the COGS after each sale. Radio frequency identification (RFID) inventory systems use active and passive technology to manage inventory movements.
Active RFID technology uses fixed tag readers throughout the warehouse; RFID tags pass through the reader and the movement is recorded in the management software inventory. For this reason, active systems work better for organizations that require real-time inventory tracking or where inventory security has been an issue. Passive RFID technology, on the other hand, requires the use of portable readers to monitor inventory movement. When a label is read, inventory management software records the data.
RFID technology has a reading range of approximately 40 feet with passive technology and 300 feet with active technology. By tracking all inventory movements through digital software, you leave a reliable data trail. Paper records make it easier to comply with audits, detect fraud and provide more accurate information. Monitoring can also help you get an overview of your supply chain, helping you find areas where you can improve your practices.
On the contrary, the simplicity of a periodic inventory system allows the use of manual registration for very small inventories.