Effective inventory management is vital for any business that stocks goods or raw materials. While inventory management was historically a manual process, modern technology has eliminated the need for a labor-intensive and error-prone manual inventory management system. Today, inventory management software is available to streamline the process, reduce errors and help businesses optimize how they maintain and order the products they sell.
We’ll examine inventory management software and share how to choose the right solution to streamline your business operations.
What is inventory management software?
Inventory management software automates inventory management, streamlining the tasks required to track inventory effectively, manage reordering and update accounting data.
“Fundamentally, [inventory management] software should let you know at any point in time what is happening with your stock,” said Mohammed Ali, head of products for Delhivery. “This software is what we call ‘mission-critical.’ If it doesn’t work for a few hours, you’re really in trouble.”
Since inventory management software is critical to a business’s daily operations, selecting a reliable, effective solution with the features you need is essential.
How does inventory management software work?
Today, most inventory management software is cloud-based, offering numerous advantages. “You need to have a system in the cloud,” Ali advised. “[Software] should be cloud-based or on a web browser, so you can check it on mobile devices.”
Here’s what you should know about inventory management software:
- Choosing a high-quality inventory management software vendor is critical: A third-party cloud provider manages the software, so choosing a vendor with high service standards is crucial. An excellent vendor partner will significantly reduce the burden of software management.
- You’ll typically subscribe to inventory management software: You can expect to pay a monthly subscription rate for cloud-based inventory management software access. According to Ali, these rates range from $100 per month for straightforward systems to $3,000 per month for advanced platforms. Numerous factors will affect your pricing, including your business’s size, number of locations, number of orders you receive and the size of inventory you maintain at any given time.
- Inventory management software has various features: Inventory management software includes features that support tracking items as they come into and leave your storefronts and storage facilities — a process known as inventory control. Inventory control features help you maintain the right amount of stock. Additionally, they include integrations that can track orders in real time and update your accounting software automatically.
First in, first out (FIFO) and last in, first out (LIFO) are inventory valuation methods. FIFO values inventory so the business is less likely to lose money when products expire or become obsolete. LIFO is better for nonperishable goods and uses current prices to calculate the cost of goods sold.
What are the benefits of inventory management software?
Inventory management software can streamline inventory control, tracking your incoming and outgoing goods whether you’re a retailer, manufacturer or warehouser. Good inventory software, supported by comprehensive inventory management processes, is updated in real time to give you a complete view of your existing inventory, even if it’s scattered across multiple locations.
Here are the top benefits of inventory management software:
- Inventory tracking: Inventory management software integrates with other crucial systems to improve inventory control by tracking your inventory in real time, showing you where it’s located and how it moves throughout your ecosystem. This eliminates human error, something for which a manual spreadsheet system is notorious.
- Reordering: The best inventory management software offers you a clear record of your complete inventory and streamlines reordering to ensure you never run out of critical items. You can also configure it to help you order enough items to continue fulfilling orders without holding “dead stock” — excess inventory that may expire or sit dormant on your shelves for an extended period.
- Accounting integration: The best accounting software integrates with inventory management systems, preventing double-entry of data and eliminating another opportunity for human error and confusion. Additionally, some inventory management software has stand-alone accounting features.
Zoho Books is an example of accounting software that integrates with inventory management software. In this case, Zoho Books and Zoho Inventory are integrated by default. Read our Zoho Books review to learn more.
What are the top inventory management software features?
When choosing inventory management software, consider your industry and the unique circumstances of your business operations. For example, some inventory management software is designed specifically for retailers and lacks key features manufacturing businesses would need. You must understand your needs before you buy.
What should retailers look for in inventory management software?
According to Bryce Bowman, an independent business consultant and founder of People First Planning, retailers should look for the following features in inventory management software:
- Point-of-sale (POS) system integration: The best POS systems integrate with inventory management software (or have their own inventory management features) to help retailers automatically track when a product sells, whether in a physical storefront, on an e-commerce platform or through another sales channel. When a product is scanned or checked out in an online cart, the POS system updates the inventory management system automatically, accounting for the sale in real time. Coupled with automated reordering, this feature allows retailers to ensure they always have a suitable amount of stock to fulfill orders quickly.
- Inventory catalog: Retailers must be able to catalog inventory by unit type and distinguishing characteristics like size, color and more. For example, if you sell shoes, you should be able to narrow them down to a specific type. Your system should identify if you have a quantity of 10 size 11 Nike Air Jordan 1s in black, five size 10 Nike Air Jordan 1s in red and so on.
- Automated reordering: When your inventory level is low, it’s essential to order more with enough lead time to avoid running out — especially for your best-selling items. Many inventory management systems offer automated reordering. Set your minimum quantities for each item. When that number is reached, the system automatically generates a purchase order to send to your supplier to refresh your stock level. Smart inventory management systems can also automatically optimize your reordering points and reordering quantities per item based on historical sales data to keep your inventory level at ideal quantities.
- E-commerce integrations: Most retailers now sell across every sales channel — physical storefronts, e-commerce websites, online marketplaces like Amazon Marketplace and more. Your inventory software must track sales on all channels so you don’t accidentally try to fulfill more orders than you have in stock. Integrations with your e-commerce channels will help ensure you don’t run into this problem.
What should manufacturers look for in inventory management software?
Manufacturers tend to have more advanced needs because they must track raw materials and finished goods. According to Bowman, key features that support manufacturing inventory management include:
- Product cost analysis: Product cost analysis tools track your raw materials and finished goods, reordering the necessary components when they hit minimum levels. They also help predict labor and operating costs, including machinery acquisition and maintenance expenses. Look for an inventory management system that can generate a bill of materials with descriptions of these costs.
- Forecasting: Demand forecasting is an inventory management technique where you analyze historical production and sales data to predict your future order management needs. A forecasting tool can help improve the accuracy of this process. Software with a forecasting feature will analyze your data to determine optimal reordering points, hiring recommendations and even shift schedules required to meet your targets and continue growing.
- E-commerce integrations: E-commerce tools aren’t just for retailers. Today, more manufacturers sell directly to consumers. Finding inventory software with e-commerce integration is essential for manufacturers — even if they don’t currently sell directly to consumers online — because they can use it to streamline sales to retail clients. Additionally, they allow you to expand sales channels in the future.
What about warehouse inventory management software features?
Warehouse inventory management is a specific subset of inventory management software that comes with important considerations. Bowman suggests looking for the following features in a warehouse inventory management system:
- Barcoding: Warehouse management systems often use barcoding to track product inflow and outflow in storage facilities. Workers can scan items as they’re received, when they’re moved to a specific aisle and bin and then scan them again when they’re out for shipment — tracking all movements automatically. Barcoding capabilities include serial tracking for high-ticket items and batch barcoding for high-volume, low-cost items. Some barcoding features require only a simple quick response reader on a smartphone, reducing the overhead associated with scanner hardware.
- Radio-frequency identification (RFID) capabilities: If you affix RFID tags to the items in your warehouse, you can track movement without scanner hardware. RFID tags and readers placed throughout the warehouse automatically track products when they come in proximity to a reader, eliminating the need for a worker to scan items in and out manually. This further streamlines the order management process and eliminates the risk of workers forgetting to scan items or misplacing them.
- Inventory management integrations: While warehouse management is a subset of a broader inventory management strategy, the two are closely related and should be integrated. Look for a warehouse inventory management system seamlessly integrated with your more extensive inventory management software (most vendors offer this option).
What are the top inventory management software solutions?
Inventory management is a field rife with competition. From big-time companies to upstarts, your business has hundreds of options. Researching your options and understanding your needs is crucial.
When in doubt, consulting other like-minded business owners is always a good practice. A general rule some small and medium-sized business (SMB) owners follow is to trust reputable, well-known companies.
“I would avoid new companies I’m not familiar with,” Bowman advised. “Look for other businesses around in your area. What are they using? Talk to them and ask how it’s working for them.”
To get started, consider the following options, which are considered to be among the best inventory management software solutions.
- Lightspeed: Lightspeed is a lightweight yet effective POS system with built-in inventory management software well-suited to small businesses, especially those in the retail industry. It offers integrations and application programming interfaces (APIs) with many leading accounting software programs. Read our in-depth Lightspeed review to learn more.
- Oracle NetSuite: Oracle NetSuite inventory management software is best for large businesses, although it offers a basic pricing package. It also includes a unified accounting platform useful for tracking financials. Read our complete review of Oracle NetSuite for more information.
- QuickBooks Online: QuickBooks accounting software offers relatively limited inventory management features with its Plus and Advanced plans. For SMBs that already use QuickBooks for their accounting, it’s a sensible solution. Read our full review of QuickBooks online to find out more.
- Acumatica: Acumatica is a complete enterprise resource planning (ERP) platform that includes inventory management and accounting features. Visit the Acumatica website to learn more.
- Cin7: Cin7 inventory management software is suitable for midsize businesses and larger companies that need a user-friendly system to support inventory tracking, reordering and accounting. Visit the Cin7 website to learn more.
- SAP: SAP is the go-to inventory management software and ERP platform for large businesses and enterprise-level corporations. It’s complex but extremely comprehensive. Visit the SAP website to learn more.
- Syspro: Syspro offers a flexible inventory management software and ERP platform suitable for businesses of all sizes. It includes a powerful reporting tool that can be used to keep tabs on your inventory and accounting. Visit the Syspro website for more information.
- Zoho Inventory: Zoho Inventory is inventory management software that seamlessly integrates with other Zoho products. It is best for businesses that already use Zoho’s suite of software solutions. Visit the Zoho Inventory website to learn more.
Why inventory management matters
Inventory management is an area where technology has revolutionized the way businesses operate. From gaining visibility of your entire stock or inventory to reducing human error by automating critical tasks, inventory management can take the legwork out of operating your business.
Finding the right platform for your business can be challenging, especially with countless options that all claim to be your best solution. By zeroing in on your business’ needs and matching them with research and reviews of prospective vendor partners, you can make the best inventory management decision for your business.
Matt D’Angelo contributed to the reporting and writing of this article. Some source interviews were conducted for a previous version of this article.