P And Q Inventory Systems: Differences and Examples In Inventory Management

It might be difficult to order the right amount of goods your business needs to meet the demand of your customers. Because either you order too much or too little inventory might cost you money and customers.

Thus, t is important to understand which inventory system corresponds to which divisions of your organization. Go through this article to gain fundamental knowledge about the P and Q inventory systems also their differences.

What is Fixed Order Quantity System (Q System)?

The fixed order quantity system or continuous review system (Q) shows that when a withdrawal is made, this system will record the remaining inventory of an item to decide if it is time to restock.  These recordings are done constantly and frequently after each withdrawal. A decision about a product’s inventory position is made at each review. The system will initiate a new order if it is too low.

👉 Read More: What is Inventory Management? How Does it Work?

The overall inventory is kept between the minimum and maximum restrictions when a new shipment comes. The set order quantity approach allows for a predetermined amount of a certain item to be ordered at a specific time. 

This strategy reduces ordering errors, saves space for completed product storage, and prevents wasteful expenditures, which would tie up cash that may be better used elsewhere.

The set order amount can be linked to an automated reorder point, where a certain quantity of an item is ordered when stock is on hand reaches a specific level.

Benefits Of Using Fixed Order Quantity System

Let’s take a look at the following advantages that the fixed order quantity system can bring to your business.

• Each resource may be obtained in the most cost-effective quantity. 
• Purchasing and inventory management personnel automatically direct their attention to necessary products only when required. 
• A positive control is simple to keep inventory investment at the appropriate level by calculating the specified minimum and maximum values.

Drawbacks Of Using Fixed Order Quantity System, especially in Economic Order Quantity

However, there are still disadvantages that you should consider when choosing this inventory system.

• Orders are often placed at inconvenient times for the manufacturers or materials suppliers.
• Because the reorder points occur randomly, the objects cannot be grouped and sorted simultaneously.
• If the order placing time is too short, there can be two to three orders waiting with the supplier at any given moment, and they may supply all orders at once.
• The EOQ (Economic Order Quantity) may provide an order quantity significantly less than the supplier’s minimum. There is always the possibility that the order placement level for a commodity has been achieved but not observed, in which case a stockout may occur.

Examples of the Q system

You can think about the checkbook that we use in our daily life as a simple example of a Q system. The checkbook has 300 checks. When it reaches the 200th check, and there are 100 checks left, there will be an order form for a new batch of checks. 

Once this form is returned to the bank, it begins an order for a fresh batch of 300 checks. Many office inventory systems employ the reorder cards placed at the bottom of a box of pens or paper clips or among stacks of stationery so that they can know when to make a new order.

Another more advanced example of the Q system is the automated checkout system with a laser scanner used by numerous supermarkets and retail businesses. The laser scanner scans the product package’s universal product code (UPC) or bar code. 

The system will quickly record and update the inventory level. Such a system is swift and precise, but it also provides management with constantly updated data on the condition of stock levels. Many suppliers and distributors of manufacturing enterprises utilize handheld laser scanners and bar code systems from managing supplies, inventory materials, equipment, finished items, and in-process parts.

What Is The Fixed Order Period System (P System)?

In the Fixed Order Period System (P system), the inventory position of a product is verified at regular intervals. When the quantity of a product is inadequate to maintain manufacturing until the next planned test, an order is placed to remove it. 

The frequency of reviews changes depending on the company. It also changes amongst goods within the same business. The order amounts fluctuate depending on the material.

Benefits Of Using Fixed Period Quantity System

Like the Q system, the P system also has some advantages and disadvantages. Let’s consult these below benefits of the P system first.

• Ordering and inventory expenditures are kept to a minimum. The ordering cost is significantly decreased, yet may require more effort for every delivery.
• As sales are certain, the suppliers will likewise give substantial discounts.
• The approach works effectively for items with irregular or seasonal consumption and whose purchases must be arranged in advance based on sales forecasts.

Drawbacks Of Using Fixed Period Quantity System

Along with its benefits are some disadvantages but insignificant.

• The periodic testing system tends to peak purchase activity during review days.
• In the administrative efficiency interest, the system requires the development of very strict order amounts.
• It necessitates a frequent evaluation of all objects, making the method relatively inefficient.

Differences Between P And Q Inventory Systems

The differences between P and Q inventory systems are divided into six main features: order initiation, order period, record keeping, order quantity, inventory size, and time to maintain.

• Order initiation: While the inventory on hand in the Q system reaches to reorder point, the inventory in the P system is based on a fixed review period and not stock level.
• Order period: In the Q system, the order period can be any time once the inventory level reaches to reorder point. But in the P system, it is only after the predetermined period.
• Record keeping: The record is tracked every time a withdrawal or additional is made, and it is done constantly in the Q system. In the P system, on the other hand, the record is preserved just during the review period.
• Order Quantity: The order amount in the Q system is constant with the same quantity ordered, while in the P system, it fluctuates every time an order is placed.
• Inventory size: The size in the Q system is often less than in the P system to the contrary.
• Time to maintain: The maintenance time in the Q system is higher than in the P system due to perpetual record keeping. On the contrary, the time in the P system is less than that since it is only during the review period.

The P and Q inventory systems are used popularly by businesses in ordering inventory nowadays. Each inventory system has its benefits and drawbacks that you should consider before choosing one for your company. When your company uses the right inventory system, you will see a clear improvement in your inventory and business status.