4 Types of Inventory

Control Systems
Perpetual vs. Periodic Inventory Control
& The Inventory Management Systems
That Support Them

www.camcode.com
4 Types of Inventory Control Systems

Inventory control systems

are technology solutions
that integrate all aspects of
an organization’s inventory
tasks, including shipping,
purchasing, receiving,
warehouse storage, turnover,
tracking, and reordering.
While there is some debate
about the differences between
inventory management and
inventory control, the truth is
that a good inventory control
system does it all by taking a
holistic approach to inventory and empowering organizations to utilize lean practices
to optimize productivity and efficiency along the supply chain while having the right
inventory at the right locations to meet customer expectations.

That being said, there are two different types of inventory control systems available
today: perpetual Inventory systems and periodic inventory systems. Within those
systems, two main types of inventory management systems – barcode systems and
radio frequency identification (RFID) systems – used to support the overall inventory
control process:

y Main Inventory Control System Types:

y Perpetual Inventory System
y Periodic Inventory System
y Types of Inventory Management Systems within Inventory Control Systems:
y Barcode System
y Radio Frequency Identification (RFID) System

Inventory control systems help you track inventory and provide you with the data
you need to control and manage it. No matter which type of inventory control system
you choose, make sure that it includes a system for identifying inventory items and

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their information including barcode labels or asset tags; hardware tools for scanning
barcode labels or RFID tags; a central database for all inventory in addition to the
ability to analyze data, generate reports, and forecast demand; and processes
for labeling, documenting, and reporting inventory along with a proven inventory
methodology like just-in-time, ABC analysis, first-in, or first out (FIFO), or last-in-first-out
(LIFO).

Read on to learn more about the types of inventory and the types of inventory control
systems and inventory management apps that can help companies more efficiently
manage their inventory.

What Are the 4 Types of Inventory?

Before getting into details about the types of inventory control systems, it’s important
to understand the different types of inventory.

Generally, inventory can be grouped into four primary classifications:

y Raw materials – Raw materials are inventory items used in the manufacturing
process to create finished goods. What is considered a raw material to one com-
pany may be considered finished goods to another. For example, a company that
creates parts or components for machinery or equipment would consider those
components finished goods. A manufacturer that purchases those components
for use in their manufacturing process would consider the same components raw
materials. Raw materials may consist of things like paper or steel, nuts and bolts,
chemicals, wheels, and other items.
y Work-in-progress – Work-in-progress (WIP) inventory includes items that are cur-
rently being processed. WIP inventory can include raw materials and components
that are going through the manufacturing process to produce finished goods as
well as finished items that are waiting for final inspection or quality control. After
those final steps are complete, these finished items would be considered finished
goods.
y Finished goods – Finished goods are comprised of all completed items that are
ready for sale to the final customer.

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4 Types of Inventory Control Systems

y MRO goods – MRO stands for maintenance, repair, and operating supplies. MRO
inventory consists of items necessary to operate, such as equipment and ma-
chinery, and the items needed for maintaining equipment and infrastructure. That
means MRO inventory can also include items that are sometimes considered raw
materials but in this case are essentially spare parts. Nuts and bolts are a good
example. When nuts and bolts are on hand to assemble finished products, they’d
be classified as raw materials. Extra nuts and bolts a company keeps in storage
to repair equipment, on the other hand, are classified as MRO. Other examples of
MRO inventory include janitorial supplies such as cleaning solutions, mops, and
brooms, tools, packaging materials, uniforms and gloves, and office supplies such
as paper, pens, calculators, printer ink, and other items.

Inventory can be further classified in

several ways depending on the industry,
the company’s operations, and the types
of inventory the company manages.
Companies that purchase finished goods
and sell them to customers at a markup
have just one type of inventory called
merchandising inventory.

Some companies, such as

manufacturers, need to manage a variety
of inventory in different classifications,
making efficient inventory tracking a
must. To effectively manage inventory,
an inventory tracking solution is paired
with an inventory control app or
inventory management app.

How Do Inventory Control Systems Work?

Inventory control systems, such as inventory control apps, offer a variety of functions
that help companies manage various types of inventory. Inventory control systems
typically consist of inventory management apps paired with barcode tagging to
identify inventory assets, and information about each item is stored in a central

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4 Types of Inventory Control Systems

database. Barcode labels serve as inventory trackers, allowing users to bring up

information about the item on a computer system, such as the item’s price, the number
of items in stock, the location of an item within a warehouse, and more.

The best inventory control apps are mobile-compatible, with companion apps that
allow users to track and manage inventory while they move throughout a facility or
from site to site. There are many inventory tracking apps for smartphones, some of
which are mobile-exclusive, while others have desktop applications to allow users
to track inventory from any device. There are also many inventory tracking apps
designed specifically to meet the needs of warehouse managers. When looking for
an inventory management app, look for features that accommodate your company’s
needs, such as trigger alerts when inventory levels reach pre-defined thresholds,
re-ordering capabilities, and analysis and reporting to support functions such as
forecasting.

The 2 Types of Inventory Control Systems

Now that we’ve covered the basics of
inventory and how inventory control
systems work in general, let’s discuss
the two main types of inventory control
systems.

Perpetual Inventory
System
When you use a perpetual inventory
system, it continually updates inventory
records and accounts for additions
and subtractions when inventory items
are received, sold from stock, moved
from one location to another, picked
from inventory, and scrapped. Some
organizations prefer perpetual inventory

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4 Types of Inventory Control Systems

systems because they deliver up-to-date inventory information and better handle
minimal physical inventory counts. Perpetual inventory systems also are preferred
for inventory tracking because they deliver accurate results on a continual basis
when managed properly. This type of inventory control system works best when
used in conjunction with warehouse inventorya database of inventory quantities and
bin locations updated in real time by warehouse workers using barcode scanners.
Inventory management apps are perpetual inventory systems.

There are some challenges associated with perpetual inventory systems. First, these
systems cannot be maintained manually and require specialized equipment and
software that results in a higher cost of implementation, especially for businesses with
multiple locations or warehouses. Periodic maintenance and upgrades are necessary
for perpetual inventory systems, which also can become costly. Another challenge of
using a perpetual inventory system is that recorded inventory may not reflect actual
inventory as time goes by because they do not conduct periodic physical inventory
counts, a necessary activity even when inventory trackers are used. The result is that
errors, stolen items, and improperly scanned items impact the recorded inventory
records and cause them not to match actual inventory counts.

Periodic Inventory System

Periodic inventory systems do not track inventory on a daily basis; rather, they allow
organizations to know the beginning and ending inventory levels during a certain
period of time. These types of inventory control systems track inventory using physical
inventory counts. When physical inventory is complete, the balance in the purchases
account shifts into the inventory account and is adjusted to match the cost of the
ending inventory. Organizations may choose whether to calculate the cost of ending
inventory using LIFO or FIFO inventory accounting methods or another method; keep
in mind that beginning inventory is the previous period’s ending inventory.

There are a few disadvantages of using a periodic inventory system. First, when
physical inventory counts are being completed, normal business activities nearly
become suspended. As a result, workers may hurry through their physical counts
because of time constraints. Periodic inventory systems typically don’t use inventory
trackers, so errors and fraud may be more prevalent because there is no continuous
control over inventory. It also becomes more difficult to identify where discrepancies

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in inventory counts occur when using a periodic inventory control system because so
much time passes between counts. The amount of labor that is required for periodic
inventory control systems make them better suited to smaller businesses.

Barcode Inventory Systems

Inventory management systems
using barcode technology are
more accurate and efficient than
those using manual processes.
When used as part of an overall
inventory control system, barcode
systems update inventory levels
automatically when workers scan
them with a barcode scanner or
mobile device. The benefits of
using barcoding in your inventory
management processes are barcode
scannernumerous and include:

y Accurate records of all inventory transactions

y Eliminating time-consuming data errors that occur frequently with manual or paper
systems
y Eliminating manual data entry mistakes
y Ease and speed of scanning
y Updates on-hand inventory automatically
y Record transaction histories and easily determine minimum levels and reorder
quantities
y Streamline documentation and reporting
y Rapid return on investment (ROI)
y Facilitate the movement of inventory within warehouses and between multiple
locations and from receiving to picking, packing, and shipping

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4 Types of Inventory Control Systems

Radio Frequency Identification (RFID) Inventory

Systems
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 the reader, and the movement is
recorded in the inventory management software. For this reason, active systems work
best 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 handheld readers to monitor inventory movement. When a tag is read, the data
is recorded by the inventory management software. RFID technology has a reading
range of approximately 40 feet with passive technology and 300 feet with active
technology.

RFID inventory management systems have some associated challenges. First, RFID
tags are far more expensive than barcode labels; thus, they typically are used for
higher value goods. RFID tags also have been known to have interference issues,
especially when tags are used in environments with a lot of metal or liquids. It also
costs a great deal to transition to RFID equipment, and your suppliers, customers, and
transportation companies need to have the required equipment as well. Additionally,
RFID tags carry more data than barcode labels, which means your system and servers
can become bogged down with too much information.

When choosing an inventory control system for your organization, you first should
decide whether a perpetual inventory system or periodic inventory system is best
suited to your needs. Then, choose a barcode system or RFID system to use in
conjunction with your inventory control system for a complete solution that will enable
you to have visibility into your inventory for improved accuracy in scanning, tracking,
recording, and reporting inventory movement.That being said, it takes more than utility
companies investing in asset tags to keep its poles safe, identifiable, and trackable.
In fact, developing sophisticated pole ID and numbering systems requires a working
knowledge of utility poles, particularly their materials, anatomies, placements, and
functions. Below are 8 expert resources that serve to explain the importance and
logistics associated with utility pole identification, maintenance, and more.

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4 Types of Inventory Control Systems

About Camode

Founded in 1979, Camcode® is a worldwide leader in the design and manufacturing of

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Camcode’s experienced sales engineers can help you select the right customized
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