Inventory management software is a must for developing a process of tracking and managing your inventory, especially as your business scales. Here's how inventory management software works.
- Inventory management software grants visibility into the entirety of your stock, helping you maintain optimal amounts to continue fulfilling orders without holding too much of a given item.
- Inventory management software automates critical tasks and reduces the chance for human errors, especially through integrations with key systems like accounting software and point-of-sale solutions.
- The features you need in an inventory management software will be dictated by your industry and the circumstances of your business's daily operations.
- This article is for entrepreneurs looking to improve the way the track, maintain and order new stock, as well as automate important tasks and enhance their accounting capabilities.
Inventory management is key for any business that maintains stock of goods or raw materials on hand. 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 the way they maintain and order the products they sell.
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What is inventory management software?
Inventory management software is a tool that automates aspects of inventory and warehouse management, streamlining the tasks required to effectively track inventory, 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, CEO of Primaseller. "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 so important to the daily operations of a business, it's important to select a solution that is reliable, effective and has the features you need.
How does inventory management software work?
Today, most inventory management software is cloud-based, and that's what most experts recommend. Cloud-based software does not require you to maintain servers or an IT staff, nor does it require you to establish your own cybersecurity plan. Instead, cloud-based software is managed by the software company, so it's important to choose a vendor that maintains high standards of service. Cloud-based software generally comes as a monthly subscription, and when choosing a strong vendor partner, can significantly reduce the burden of managing the software.
"You need to have a system in the cloud," Ali said. "In 2020, if you're still buying software, you need to install on your computer, you're doing something wrong. It should be cloud-based or on a web browser, so you can check it on mobile devices."
You can expect to pay a monthly subscription rate for access to a cloud-based inventory management software. Generally, Ali said, these rates range from $100 per month for simple systems to as much as $3,000 per month for advanced platforms. For the most part, he added, this depends on the size of your business, including the number of locations a system needs to cover, the number of orders received, and the size of inventory you maintain on hand at any given time.
Inventory management software includes features that support the tracking of items as they come in and out of your storefronts and storage facilities, a process known as inventory control. They include features that can help you maintain the right amount of stock at all times. Additionally, they include integrations that can track orders in real-time and update your accounting software automatically.
Key takeaway: Inventory management software tracks all products in your storefronts and storage facilities and helps you to reorder units as needed, offering complete inventory visibility.
What are the benefits of using inventory management software?
Inventory management software can streamline the process of inventory control, tracking your incoming and outgoing goods, whether you are a retailer, manufacturer or warehouser. A 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 is scattered across multiple locations. [Read related article: 7 Inventory Management Techniques]
"Inventory management is about controlling the inflow and outflow of your inventory, as well as maintaining that inventory," said David Singletary, CEO of DJS-DIGITAL.
Inventory management software integrates with other key systems to improve inventory control by tracking your inventory in real time, showing you where it is located and how it moves throughout your ecosystem. This eliminates human error in the process, something for which a manual, spreadsheet system is notorious.
"When it's time to sell that piece, knowing where it is is very helpful," Singletary said. "You need the system to tell you to go to the exact place where the product lives [and] track it as it gets moved from its location all the way out the door to delivery to the customer."
Inventory management software, at its best, not only offers you a clear record of your complete inventory, it can also streamline reordering to ensure you never run out of key items. It can also be configured to help you order enough items to continue fulfilling orders without holding "dead stock," or so much inventory that it expires or sits dormant on your shelves for a long period of time.
Many inventory management systems integrate with your accounting software or come with accounting capabilities built in. This prevents double-entry of data and eliminates yet another opportunity for human error and confusion.
Key takeaway: Inventory management software eliminates human error and automates important tasks that help you keep enough inventory on hand at all times to fulfill sales quickly, without leaving you overburdened with stock you can't move.
What are the key features to look for in inventory management software?
When choosing an inventory management software, it's important to consider your industry and the unique circumstances of how your business operates. Some inventory management software is designed specifically for retailers, for example, and lacks some key features required for manufacturing businesses. Understanding the features you need before you buy is key to making the right choice.
"A retailer is going to have a very different set of needs than a manufacturer," said Bryce Bowman, founder of People First Planning and independent business consultant. "
According to Bowman, retailers should look for the following features in inventory management software:
Point of sale integration: An integration with your point of sale system helps 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 point of sale system automatically updates the inventory management system, 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 quickly fulfill orders.
Inventory catalog: For retailers, it is important to be able to catalog inventory not just by the type of unit, but also by distinguishing characteristics like size, color and other distinguishing characteristics. For example, if you sell shoes, you should be able to specify shoes down to the 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 getting low, it's important to order more with enough lead time to avoid running out, especially for your bestselling items. Many inventory management systems offer automated reordering; simply set your minimum quantities for each item and, when that number is reached, the system will automatically generate 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 and more. It is critical for your inventory software to track sales on all channels so you don't accidentally try to fulfill more orders than you have stock. Integrations with your e-commerce channels will help ensure you don't run into this problem.
Manufacturers tend to have more advanced needs, since they have to track raw materials in addition to finished goods. According to Bowman, key features that support manufacturing inventory management include:
Product cost analysis: Product cost analysis tools not only track your raw materials and finished goods, reordering the necessary components when they hit minimum levels, it also helps predict your labor costs and operating costs, such as machinery acquisition and maintenance expenses. Look for an inventory management system that can generate a bill of materials that includes a description of all these costs.
Forecasting: Forecasting is the process of analyzing historical production and sales data to predict what future order management needs will look like. 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 used to be only for retail, but today more manufacturers are selling directly to consumers. Finding an inventory software with e-commerce integration is also important for manufacturers, even if they don't currently sell directly to consumers online, because they could use it streamline sales to their retail clients, or they could even expand to include an additional sales channel in the future, Bowman said.
Finally, warehouse inventory management is a specific subset of a larger inventory management software, and it comes with key considerations of its own. Bowman suggested looking for the following features in a warehouse inventory management system:
Barcoding: Barcoding is the feature that warehouse management systems use to track the inflow and outflow of products in storage facilities. Workers can scan items in as they're received, scan them when they're moved to a specific aisle and bin, and then scan them again when they're out for shipment – automatically tracking all movements. There are multiple methods of barcoding, including serial tracking for high-ticket items and batch barcoding for high-volume, low-cost items. Some barcoding features can be done with a simple QR reader on a smartphone, reducing the overhead associated with scanner hardware.
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 close proximity to a reader, eliminating the need for a worker to manually scan items in and out. This further streamlines the process of order management and eliminates the risk that a worker forgets to scan an item, misplacing it in the process.
- Inventory management integrations: While warehouse management is a subset of a wider inventory management strategy, the two are closely related and should be integrated. Look for a warehouse inventory management system that is seamlessly integrated with your larger inventory management software – most vendors offer this option.
Key takeaway: The features you need in inventory management software depend on your industry and business processes. Choose a system that suits your needs and scales alongside your business as it grows.
Top inventory management software companies
There are a lot of inventory management software vendors out there, so it's important to do your research first. Avoid unproven vendors with little name recognition. When in doubt, ask other businesses like yours for references.
"I would avoid new companies I'm not familiar with," Bowman said. "Look for other businesses around in your area. What are they using? Talk to them and ask how it's working for them."
Here are some of the most prominent and popular inventory management software vendors on the market:
Acumatica is a complete enterprise resource planning (ERP) platform that includes inventory management and accounting features.
Cin7 inventory management software is suitable for midsize businesses and larger who need a user-friendly system to support inventory tracking, reordering and accounting.
Lightspeed is a lightweight, yet effective POS system with built-in inventory management software that's well suited to small businesses, especially those in the retail industry. It offers integrations and APIs with many leading accounting software programs.
Oracle NetSuite inventory management software is best for large businesses, though it does offer a basic pricing package as well. It also includes a unified accounting platform useful for tracking financials.
QuickBooks accounting software offers a relatively limited inventory management features with its Plus and Advanced plans. For small and midsize businesses that already use QuickBooks for their accounting, it's a sensible solution.
SAP is the go-to inventory management software and ERP platform for large businesses and enterprise-level corporations. It is complex but extremely comprehensive: It can do it all.
Syspro offers a flexible inventory management software and ERP platform that is suitable for businesses of all sizes. It includes a powerful reporting tool that can be used to keep tabs on your inventory and accounting.
- Zoho Inventory is inventory management software that is seamlessly integrated with other Zoho products. It is best for businesses that already use Zoho's suite of software solutions.
Inventory management software can help you improve the way you track products as they move through your ecosystem and support your order management capabilities by automatically replenishing stock without over-ordering. Implementing an inventory management software is key to reducing human error and helping your business scale successfully.
Key takeaway: Do your research to choose a reputable inventory management software from a vendor that offers exceptional support.