Periodic and Perpetual Inventory Systems: Why You Need Both

Periodic vs. Perpetual-Inventory

In the dynamic world of grocery store management, two inventory systems have stood the test of time: perpetual and periodic inventory. Veterans of the grocery store industry are well aware that managing the fresh departments, including produce, meat, seafood, and deli, is rarely a quick and easy task.  

The mere mention of periodic inventory counts is enough to evoke groans from seasoned managers who have, at some point, burned the midnight oil with pen and paper in hand, meticulously counting every item on the store floor and every ingredient stashed away in the back rooms and store kitchens. 

Thankfully, times are changing.  

With the advent of cutting-edge technology and innovative solutions, the agony of periodic counts need not be as time-consuming or frequent as before. With the right tools in place, stores can seamlessly reconcile physical inventory with perpetual records, making audits a smoother, less time-consuming, and error-resistant endeavor. 

Thanks to the acceleration of research and innovation, groceries of all sizes can now easily combine the benefits of periodic and perpetual inventory systems to optimize their operations, reduce waste, and enhance customer satisfaction. 

Currently, there are two standard methods for tracking the quantity and cost of goods sold in stores: periodic and perpetual inventory methods. While each method has a different use case, there is a common misunderstanding that one is better than the other. As the industry stands today, both methods are needed. This blog will compare periodic vs. perpetual inventory methods, explain their differences, and why grocers can’t rely on just one.

Understanding Periodic and Perpetual Inventory Systems

Inventory management in the grocery industry involves the constant juggling of perishable and non-perishable goods, ensuring that shelves are adequately stocked to meet customer demand while minimizing waste.  

The importance of this task cannot be overstated, as overstocking can lead to excessive shrink while understocking can result in dissatisfied customers and lost sales. 

Two primary inventory management systems have been in use for a long time in the grocery industry: periodic and perpetual inventory systems.

Periodic Inventory: A Financial Quest

Periodic inventory management relies on manual counts conducted at specific intervals, such as weekly, monthly, or quarterly. Periodic inventory is primarily used for financial purposes, aligning with reporting periods that need to report profit, losses, and balances. 

This method is time-consuming and often dreaded by store staff, especially for fresh perimeter-store items, which require experienced personnel to count accurately. 

For center-store items, third-party teams are often employed to conduct periodic counts. However, for perishable items, store managers or department managers must dedicate hours to counting floor and backroom ingredients used for fresh-prepared and grab-and-go options.

Periodic vs. Perpetual-Inventory

Perpetual Inventory: A Replenishment Quest

Perpetual inventory management, on the other hand, relies on real-time tracking, a system that traditionally relied on pen and paper and through manual counts and equations. With today’s technological advance, such inventory can be tracked through scale and POS systems, RFIDs, and barcodes.  

Every time a fresh item, or a prepared item with a complex set of ingredients is labelled from a scale, and passes through the register as sold, the inventory is updated instantaneously. 
Advancements in AI and machine learning have made it possible to maintain highly accurate stock levels, automate replenishment, and even track the inventory of prepared items.  

This level of accuracy extends to tracking recipe ingredients, labor costs, and packaging costs, offering grocers unprecedented insights into their operations.

The Symbiotic Relationship

While perpetual inventory systems are more modern, relying on innovative machine learning technologies to save time and money, in practice, grocery stores of all sizes must rely on both systems to supply the various goods consumer’s demand.   

Attempting to substitute one for the other entirely would be impractical and unproductive. Any attempt to use probabilistic models to solve financial requests will never work. Thus, the solution is to find balance.  

Periodic inventory counts are still necessary for financial reporting and to provide a point of reference for the accuracy of perpetual inventory systems. However, technological advancements have allowed perpetual inventory systems to play a more significant role in supporting inventory counts for financial purposes. In some cases, retailers count less frequently, leveraging the accuracy of perpetual counts against periodic ones. 

The key is to create a system that unifies both approaches into one holistic system, integrating an intelligent count for financial needs with perpetual inventory tracking. While some “leakage” is inevitable due to factors like theft, coding errors, and end-of-life products being tossed, modern software solutions are improving daily at capturing these events and minimizing these losses.

Labor Efficiency in the Grocery Industry

The efficiency of a store’s workforce plays another critical aspect of inventory management systems.  

As a store’s team undergoes transitions, dealing with younger employees who are tech-savvy, it can pose a challenge to train associates in traditional inventory management techniques. However, by implementing solutions that promote adherence to best practices, organizations can realize improved efficiency and productivity benefits. 

Providing employees with intuitive tools and insights at their fingertips is the most efficient way to address this challenge. Modern perpetual inventory systems empower staff to manage inventory effectively, regardless of their level of experience, leading to more efficient operations and an engaged workforce.

Advancements in Perpetual Inventory Systems 

Advancements in technology have made perpetual inventory systems more accessible, automated, and affordable for retailers of all sizes. These systems will not only improve your operational functionality but can deepen your understanding of your customers, suppliers, and the guest experience. 

Real-Time Tracking 

Perpetual inventory software continuously monitors inventory levels, providing real-time updates. This allows store managers to have an up-to-date view of stock levels and reduces the likelihood of overstocking or running out of popular items.

Reduced Waste 

Perpetual inventory software helps minimize waste by ensuring that perishable items are sold before they expire. This is crucial for grocery stores with a focus on fresh produce and other perishables. 

Streamlined Inventory Reordering 

Perpetual inventory systems often include automated reorder points. When inventory levels drop to a specified threshold, the system can generate purchase orders automatically, streamlining the restocking process and reducing the risk of human errors.

Advanced Cost Analysis 

Perpetual inventory systems track not only finished products but also backroom items, packaging, and labor, providing insights into recipe management, ingredient margins, and labor costs. With precise cost data, grocery stores can calculate profit margins on individual products (whole or prepared) accurately. This enables better pricing strategies and helps identify which products are more profitable and which may need adjustment.

Enhance the Customer Experience 

Accurate information about the availability of fresh food items improves the shopping experience and increases customer satisfaction.

Navigate Compliance & Regulatory Issues 

In an era of heightened focus on food safety and regulatory compliance, the ability to track and trace every item is essential. Perpetual inventory software can trace products back to their specific batches or lots, which is crucial in the event of a product recall or quality issue.

Elevated Data Analytics 

Perpetual inventory systems generate vast amounts of data that can be analyzed to gain insights into customer behavior and market trends, enabling informed decisions about product offerings, pricing, and promotions. With precise inventory tracking, stores can generate more accurate sales reports and demand forecasts. This information is valuable for planning promotions, discounts, and marketing strategies.

Unlocking Grocery Store Success: The Perpetual-Periodic Inventory Symbiosis

The grocery industry relies on a delicate balance of inventory management to meet customer demand while minimizing waste and optimizing operations.  

Periodic and perpetual inventory systems serve different but complementary purposes in achieving this balance.  

Understanding the strengths and limitations of each system is crucial for merchants and managers. While periodic inventory counts remain essential for financial reporting, technological advancements have elevated the role of perpetual inventory systems in supporting these counts and providing real-time insights. 

The key to success is finding a solution that unifies both systems, creating a symbiotic relationship that leverages the strengths of each. By doing so, grocers can achieve greater accuracy in inventory management, reduce waste, improve customer satisfaction, and stay competitive in a rapidly evolving industry. 

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About Invafresh

With a combined 500+ years of Freshology experience, the heritage of Invafresh has enabled fresh food retailers to create extraordinary store operations performance and differentiated customer experiences. As the leader of Freshology, Invafresh is deployed in over 350 grocery retailers spanning a global reach of 35 countries with more than $100 million of Fresh revenue being transacted daily, to provide AI/ML demand forecasting, merchandising, replenishment, and sustainability and compliance solutions.  

Learn more at About Us | Invafresh.

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