It is always challenging to make a proper order for a correct quantity of things. No matter whether you order just a little amount of goods to avoid the outdated stock or you order a large number of goods to avoid stockout, it will affect considerably to your money and consumers. Knowing which inventory system correlates to which sections of your company is extremely critical. Keep reading to gain the fundamentals of the P and Q inventory system, along with its differences, by reading this post.
What Does Inventory System Mean?
An inventory system simplifies the management structure and working principle for managing and monitoring inventory resources. This system functions in ordering and receiving supplies, along with scheduling order placement and tracking what was ordered, the amount ordered, and who placed the order. These two types of inventory system concepts are:
- The fixed order quantity system or the Q system
- The fixed order periodic system or the P system
Overall Of The P Inventory System
The inventory level of every material item is verified at periodic periods of time in this method. Whenever the quantity of a certain product is insufficient to keep manufacturing until the following planned check, an order is made to eliminate the supply.
The periodicity of inspections varies depending on the company. It also differs amongst goods within a single business, based on the item’s significance, set production plans, market circumstances, and so on. Order quantities change based on the material.
P Inventory System Benefits
- Ordering and inventory costs are minimized to a bare minimum. The ordering cost is greatly reduced, but each delivery may require more work.
- Because sales are guaranteed, suppliers will also offer big discounts.
- The method works well for goods with inconsistent or periodic demand that must be purchased in advance according to sales estimates.
P Inventory System Drawbacks
- In review periods, the periodic evaluation system sees a spike in purchasing activity.
- The system needs the construction of highly stringent order quantities in the interest of administrative efficiency.
- It requires regular assessment of all items, making the technique costly.
Overall Of The Q Inventory System
The Q system is another name for the fixed order quantity system. Once the inventory on hand hits the reorder point in this system, a set number of materials is purchased. The economic order amount is the set amount of material purchased every time. When a new shipment comes, the total inventory is maintained within the maximum and minimum restrictions.
The set reorder approach lets standards of known of certain goods to be purchased at an exact point in time. This approach helps to prevent ordering errors, save space for finished goods storage, and avoid wasteful spending that would lock up money that can be invested in other things.
The fixed order quantity can be coupled to an automatic reorder point, in which a particular number of a product is purchased whenever inventory on hand exceeds a predetermined level.
Q Inventory System Benefits
- Any material may be gotten at the lowest possible cost.
- Workers in purchase and inventory management automatically concentrate their focus on essential things solely when they are needed.
- Optimistic management is as easy as computing the stated minimum and maximum amounts to maintain investment in inventory at the proper level.
Q Inventory System Drawbacks
- Purchases are sometimes made at inappropriate periods for producers or material suppliers.
- Since the reorder points appear randomly, the items cannot be classified and organized at the same time.
- When any order placement time is overly fast, the provider may have more than two requests awaiting at any particular time, and they could supply all requests in one go.
- The EOQ may give a much lower order quantity than that of the provider’s minimum. It is still the potential that a stock’s purchase requisition level has been reached but not detected, in which out-of-stock instance may happen.
P And Q Inventory Systems Comparision
Order beginning, order period, record keeping, order amount, inventory size, and time to maintain are the six primary distinctions between the Q and P systems.
- Order beginning: While stock in the fixed order quantity system approaches reorders point, stock in the fixed order period system is predicated on a predetermined review time rather than stock level.
- Order period: The order period in the fixed order quantity system can occur at any time after the stock level hits the reorder point. However, it only occurs after the set duration in the P system.
- Record keeping: When a withdrawal or addition is performed, a record is kept in the fixed order quantity system throughout the entire process. In the fixed order period system, though, the data is only stored for the duration of the financial year under review.
- Order amount: In the fixed order quantity system, the order quantity remains unchanged with the items ordered, but in the fixed order period system, it varies with each order.
- Inventory size: The Q system frequently has a smaller size than the P system.
- Maintaining time: Because of everlasting record keeping, the Q system requires more maintenance time than the P system. On the opposite, because it is just mostly during the review process, the time in the P system is shorter than that.
|Differences||P System||Q System|
|Order beginning||Depending on a predetermined review time rather than inventory levels||The inventory on hand has reached the reorder point|
|Order period||Only after the set time frame||When the inventory level exceeds the reorder point|
|Record keeping||Only during the review period||Every time a withdraw or addition is performed, it is performed regularly|
|Order amount||Varied quantity||Constant same quantity|
|Time to maintain||Shorter||Higher|
Summarize table of the differences between P and Q systems
Today, company owners usually employ the P and Q inventory system to order stock. Every inventory system contains its own strengths and weaknesses that you should think about when you decide which one to use for your enterprise. It will be a marked improvement in both your inventory and business position if you apply the suitable inventory system to your warehouse.