Ordering the appropriate quantity of items for your company to fulfill client demands may be challenging. Because ordering too much or too little inventory might lose your money and consumers. As a result, it is critical to understand which inventory management system relates to which divisions of your company.
Please read this article to learn about the P and Q inventory system and its distinctions.
What is the P and Q system of inventory management?
The inventory system is in charge of distributing and handling the b2b inventory cycle. Before they are transformed into a finished product, raw materials may be transported thousands of kilometers. These inventories are used to separate the supplier, producer, and customer.
Inventories enable the acquisition of raw materials in cheap lot sizes and the processing of raw materials into finished items in the most cost-effective proportions.
The inventory model there are two types of inventory models;
- single-period inventory model
- multi-period inventory model
The multi-period inventory model has two different inventory models: the fixed order quantity model and the fixed period model. The fixed order quantity model is also known as the Q model, and the fixed period model is known as the P model.
Q model in inventory
Let’s start with the fixed order quantity model. In this model/system, a fixed quantity of material is ordered whenever the stock on hand reaches the reorder point. The fixed quantity is the economic order quantity which is how much to order.
There are two different types of Q models.
- Q model with safety stock.
- Q model without safety stock.
There are three levels in a fixed order with safety stock: maximum, reorder, and minimum. Below the minimum level, there is a safety stock, so whenever the inventory reaches the minimum level, it must be reordered. According to the fixed order quantity model, there is always a safety stock maintained in this model.
Another one is the fixed order quantity model without safety stock. There are three levels: maximum, reorder, and minimum. No safety stock is maintained, so whenever inventory reaches the minimum level, that is called the reorder point. In this model, inventory decreases at a constant rate.
Example
The automatic checkout system with a laser scanner used by many supermarkets and retail organizations is a more advanced example of the Q system. The laser scanners read the product package’s universal product code (UPC) or barcode.
The inventory level will be instantly recorded and updated by the system. A system of this type is quick and precise. Still, it also offers management continually updated data on the state of its stock levels.
Pros
- Each resource may be obtained in the most cost-effective quantity.
- Purchasing and inventory managers automatically direct their attention to products that are necessary only when they are required.
- By calculating the specified maximum and minimum values, we can positively control by effectively managing to keep inventory investment at the correct level.
Cons
- Because the reorder points occur randomly, the objects cannot be grouped and sorted simultaneously.
P-model
In a fixed period system ( P model ), inventory is counted only at a particular time, such as every week or every month. Counting inventory or placing orders periodically are desirable when vendors visit customers and take orders for their complete line of products.
In this model, the stock position of each item is regularly reviewed when the stock level of a given item is sufficient to sustain production operations when an order is placed in the next review.
Pros
- Ordering and stocking expenditures are minimal. The ordering cost is significantly decreased, yet more effort for each delivery may be required.
- As sales are certain, the suppliers will likewise give substantial discounts.
Cons
- The periodic testing method increases purchase activity around review days.
- In the interest of administrative efficiency, the system requires developing rigid order amounts.
P-system inventory example
The pharmacy is one example of a company that employs a fixed-period inventory system. Shampoo, toothbrushes, soap, bandages, cough medication, and aspirin are among the personal hygiene and health-related goods sold at drugstores.
Typically, the vendors who supply these things to the business will take frequent visits, such as every few weeks or every month, to count the inventory for their products. Suppose the inventory is depleted or reaches a predefined reorder threshold. In that case, a new order will be issued for an amount sufficient to replenish the inventory to the desired level.
Drug store managers will often not monitor inventory levels between vendors’ visits, instead relying on the vendors to take inventory at the time of the visit.
Difference between Q and P inventory systems
| P inventory system | Q inventory system |
|---|---|
| The inventory is based on a fixed review period | The inventory in the Q system reaches to re-order time |
| The record in the P system is reserved at the review point | The record in the Q system is constant |
| The order amount in P system fluctuates | The order amount in Q system is constant |
| The maintenance in P system is lesser | The maintenance in Q system is higher |
Final Verdict
An inventory system simplifies the organizational structure and operating principles for managing and controlling the inventory cycle. This system is in charge of ordering and receiving supplies, scheduling order placement, and tracking what was ordered, how much was ordered, and who placed the order.
Firms commonly utilize the P and Q inventory management system to order digital inventory. Each inventory system has advantages and disadvantages that you should evaluate before selecting one for your firm. When your organization implements the proper inventory system, you will see a significant enhancement in your inventory and business position.
