Inventory Systems: Types of Inventory, Periodic vs Perpetual, and the Benefits
An inventory system is how a company records and controls its stock. Learn the 5 types of inventory, periodic vs perpetual inventory systems, and the benefits.
By Tim Advotics · · Updated · 2 min read
Key takeaways
- An inventory system is how a company records, monitors, and controls its stock.
- Five common types of inventory: raw materials, work in process, finished goods, MRO items, and safety stock.
- A periodic system counts stock at intervals, while a perpetual system updates stock with every transaction.
- Benefits: preventing shortages and overstock, controlling goods movement, reducing dead stock, and keeping customers satisfied.
An inventory system is how a company records, monitors, and controls its stock — how much there is, where it is, and when to reorder. Inventory may be held for resale or for production, and that purpose determines the types of inventory and the system that fits.
What are the types of inventory?
| Type | Description | Examples |
|---|---|---|
| Raw materials | Materials processed into products | Flour, plastic, chemicals |
| Work in process (WIP) | Products not yet finished or not yet through quality control | Semi-finished goods on the line |
| Finished goods | Products ready to sell | Packaged goods in a distributor's warehouse |
| MRO items | Items for maintenance, repair, and operations | Machine spare parts, lubricants, cleaning supplies |
| Safety stock | A buffer for demand spikes or late supply | Extra stock of best sellers |
What is the difference between periodic and perpetual inventory systems?
| Aspect | Periodic | Perpetual |
|---|---|---|
| Stock updates | During periodic physical counts | With every inbound and outbound movement |
| Data freshness | Only accurate right after a count | Always current |
| Best for | Small businesses with few transactions | Businesses with many SKUs, warehouses, and transactions |
| Tools needed | Simple (records, spreadsheets) | Digital system, barcode/QR scanning |
| Risk | Variances surface only at count time | Variances still possible, so cycle counts are needed |
Perpetual systems still need regular stock taking or cycle counts to confirm records match physical stock.
What are the benefits of a good inventory system?
- Prevents shortages. Orders are still filled when demand rises — reflected in a high fill rate.
- Prevents overstock so capital isn't tied up in the warehouse.
- Controls goods movement in and out of the warehouse, including transfers between locations.
- Reduces dead stock by tracking fast- and slow-moving items.
- Protects product quality by issuing stock by arrival or expiry date.
- Keeps customers satisfied and loyal because goods are available and ship on time.
How do you run a perpetual inventory system?
With Advotics Warehouse, every receipt, transfer, and issue is recorded by scanning in the app, so stock per SKU and location stays current across warehouses. For distributors, the Inventory module in Advotics Distribution books stock automatically when an order is approved and reduces it when goods ship.
Want your inventory recorded accurately at all times? Contact the Advotics team.
Frequently asked questions
What is an inventory system?
An inventory system is the method and tools a company uses to record, monitor, and control its stock — how much there is, where it is, and when to reorder.
What are the types of inventory?
Raw materials, work in process, finished goods, MRO items for maintenance and repair, and safety stock as a buffer.
What is the difference between periodic and perpetual inventory?
A periodic system only updates stock quantities during physical counts, for example at month-end. A perpetual system updates stock every time goods come in or go out, so quantities are always current.
What is safety stock?
Safety stock is buffer inventory held against demand spikes or supply delays, so orders can still be fulfilled.
