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Updated Oct 23, 2023

POS Inventory Management

Keeping your sales and stock data in sync can boost profits and customer satisfaction.

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Written By: Jennifer DublinoBusiness Strategy Insider and Senior Writer
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This guide was reviewed by a Business News Daily editor to ensure it provides comprehensive and accurate information to aid your buying decision.

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If your business sells physical products, you need to manage inventory. Inefficient inventory management can cause a host of problems, such as high warehousing costs, not having products available for customers, having products in the wrong place and having too much product, forcing you to sell at a discount.

Read on to find out how the right POS system can improve your inventory management, boost profits and improve customer satisfaction.

Did You Know?Did you know
According to IRI research cited in a Veeqo infographic, more than 70% of online shoppers and 66% of brick-and-mortar shoppers would search for an item elsewhere if it was unavailable rather than waiting until it is back in stock.

What is inventory management?

Inventory management involves having enough products to meet demand and having your products available in the correct location when they’re needed. 

Editor’s note: Looking for the right POS system for your business? Fill out the below questionnaire to have our vendor partners contact you about your needs.

If you have too many of a product, you’ll run out of space to store them, potentially incurring storage or warehouse fees and forcing you to sell leftovers at a lower price, eating into your profit margin.

If you don’t have enough of a product, you’ll lose sales. Your customers will start shopping with your competitors, and your customer satisfaction and reviews will suffer. 

When thinking about inventory management, consider these key components. 

  • Visibility: Know what you have specifically, and be aware of where your products are located.
  • Inventory: Make an educated guess about how much of each item you’ll need to meet demand within a specific time period.
  • Purchasing/replenishing: Know when stock must be purchased in order to arrive in time to meet demand.
  • Storage: Figure out how much room you have to store inventory, and send your products to an appropriate storage area if necessary.
  • Analysis: Understand the data that gives insight into how to order inventory more effectively in the future.
  • Multichannel tracking: Allocate inventory levels among physical locations and fulfillment centers for e-commerce orders, and shift inventory as needed.
FYIDid you know
In a Wasp Barcode Small Business Report, 43% of retailers said that inventory management is their top day-to-day challenge.

Who needs inventory management?

Among small and midsize businesses, retailers and restaurants typically have the most need for inventory management. Retailers usually carry various products, many of which have differences in size, material and color. Keeping tabs on all these items – and making sure they’re available when customers are ready to buy – is critical to a business’s success.  

Restaurants have a somewhat different issue because their inventory includes ingredients. If one ingredient is missing, the chef can’t make a particular dish, and customers will be disappointed. The same goes for bars that serve mixed drinks. Many restaurants also have to deal with ingredient seasonality. A good inventory management system can ensure that all necessary ingredients are on hand.

Inventory management techniques

Business owners use several inventory management techniques to optimize inventory levels. The most basic technique is perpetual inventory management, which means counting inventory as soon as it arrives and subtracting when items are sold or lost to damage or theft. This system is often combined with demand forecasting, which uses past sales data to anticipate future demand and quantities that should be ordered. 

Some companies use just-in-time inventory management to minimize storage costs. This works well when the supply chain is consistent but can cause problems when there is a problem along the way. 

To avoid stock-outs, some businesses use safety stock inventory, where a little extra inventory over expected demand is ordered to have in reserve. Another technique used when sales of certain products are consistent over time is the reorder point formula. With this method, reordering is triggered when stock levels fall to a certain point or in advance of a high-demand period based on previous sales data.

POS inventory management

While inventory management can be complicated and error-prone when done manually, inventory management software solutions can streamline the process significantly. In particular, small businesses can benefit from the inventory management functionality built into some POS systems.

What is a POS system?

A POS system is a combination of hardware and software that a cashier uses to process payments for sales. Although there are third-party POS systems, most POS systems are purchased directly from payment processing companies. 

POS hardware costs range from $299 to $1,400, depending on the company and the components. POS software costs between $20 and $272 per month, and the cost increases based on the number of registers using the software.

POS hardware typically includes a touchscreen device on a stand, credit card reader, cash drawer, receipt printer and (for retailers) a handheld scanner. 

At its most basic, POS software accepts various payment types and allows the cashier to select items being sold from a product list. It displays the items’ prices, calculates sales tax, and implements discounts, promotions and additional charges. Many modern POS software systems have more advanced capabilities, including inventory management.

Key TakeawayKey takeaway
POS systems are the best choice for many businesses because they combine payment processing, inventory control and secure customer data storage.

How a POS system can help with inventory management

When you set up a POS system with inventory management features, you’ll need to load information about your current products and inventory into the system, including product names, descriptions, categories, supply prices, retail prices, SKU numbers, barcode numbers, quantities and suppliers. 

Every time you ring up a sale, the software will automatically adjust the items’ inventory levels. This gives you a number of advantages.

  • Automated inventory tracking: This reduces the time employees need to devote to checking on stock and the need for error-prone inventory hand-counting.
  • Report generation: See your sales and inventory levels by location or time period to know when to reorder or run a promotion. Valuable POS sales report insights include information on your bestsellers, your slow-moving products, your most profitable products and items that are running low.
  • Quick visibility: The system allows employees to quickly see if an item is in stock, providing an easy way to monitor inventory levels and avoid stock-outs.
  • Remote management: If your business has multiple locations or channels (e-commerce and brick-and-mortar), the system will allow you to see inventory levels for products in each location and channel without having to go there physically.
  • Dynamic inventory management: Better information allows businesses to use inventory management techniques like just-in-time, perpetual inventory, and reorder point to minimize costs and maximize sales.
Even though the best POS systems can automate inventory management, it's still important to physically count inventory periodically to account for theft and damaged goods. You can do this manually or with a handheld scanner.

Top POS inventory management systems

Not all POS systems have inventory management capabilities. Here are our top picks for POS systems that include inventory management.

1. Best for startups and small businesses: Square

Square has several iterations of its POS system: Square POS (free), Square for Retail and Square for Restaurants. For startups and very small businesses, where every dollar counts, a free tool like Square POS can make a difference, and it’s scalable when the company grows. The inventory management portion gives you daily alerts for low-stock or out-of-stock items, and the software offers downloadable reports. 

Square POS can support thousands of SKUs, but it’s best for companies with relatively simple inventory needs (inventory on hand, reordering and shifting inventory between locations). It does not support more complex inventory tasks, such as bundling, parts, assembling and custom orders, for businesses with more complex inventory management needs.

Square POS also integrates with third-party inventory management software providers, including Shopventory, SKU IQ and Stitch Labs. Payment processing fees are 2.6% plus 10 cents per transaction.

For more information, read our full review of Square.

2. Best value overall: Hike 

Hike’s POS system supports multi-location stores with granular reporting so that you can drill down into specifics on inventory and sales. It’s easy to use and has advanced features, including handling products with variants, composite product management and layaway. 

Its affordable plans, which start at $69 per month, can scale up or down, so it’s a good choice for seasonal retailers and pop-up stores. The software loads on an iPad to create an iPad POS system, so you can take it on the go easily. 

If you sell in stores and online, Hike may not be the best choice since only its higher-priced plans, starting at $89 per month, support e-commerce. The higher-priced plans also have an integrated label-printing feature, support multiple delivery address profiles, and have multi-outlet features, such as stock transfer and outlet-based user access. 

Unlike the other POS system providers, Hike is not a payment processor, so you’d have to get a third party to process your credit card and other non-cash payments. Hike integrates with Square, Worldpay, Clearent, Evo, PayJunction, Elavon and PayPal. 

For more information on credit card processing companies, read our reviews of the best credit card processors to compare costs and features. 

3. Best for retail: Lightspeed

Retail businesses with large, complex inventories can improve their inventory management using Lightspeed for Retail. It allows businesses to track inventory on a granular level, sell unique product variations and bundles, manage work orders, track by serial numbers in addition to SKUs, set custom reorder points, and fulfill special orders. 

A standout feature is its supplier network, which lets you discover new products, buy and reorder products, and track shipments within the app. It has robust reporting, with more than 40 built-in customizable reports along with graphs and tips. 

While Lightspeed has a free trial, there is no free plan. Plans start at $69 per month for one register. Additional registers are $29 per month. Payment processing fees are 2.6% plus 10 cents per transaction. 

Read our review of Lightspeed POS for more information.

4. Best for restaurants: xtraCHEF by Toast 

Toast is a POS system designed specifically for restaurants, and it boasts a number of industry-specific capabilities. 

Toast’s inventory management software is administered by xtraCHEF, which integrates with Toast’s POS system as well as other systems. Toast’s xtraCHEF has very detailed inventory tracking and control, with an excellent menu analysis report, giving you recipe and food cost calculators to help you manage your profit margin and plan future menus. 

It can track ingredient freshness based on when they were purchased, and it offers countdowns to out-of-stock items. You can order ingredients in the app, manage your distributors, create purchase orders and import distributor invoices. 

Other noteworthy features include an analysis of the cost of goods sold, food waste reports, product mix reports and a shelf layout map showing where in your actual kitchen inventory is stored.

While xtraCHEF by Toast has a free version, only the paid versions, Starter and CHEF’s Choice, include inventory management. It does not publish its pricing; you’ll need to request a quote from the company. 

Toast’s pricing starts at $79 per month for one terminal and $50 per month for each additional terminal. Read our Toast POS review for more information.

author image
Written By: Jennifer DublinoBusiness Strategy Insider and Senior Writer
Jennifer Dublino is a small business owner and skilled strategic marketer who specializes in designing campaigns for sales conversion. For more than 30 years, she has helped businesses with market research and planning, budgeting for marketing initiatives, lead generation and more. Over the years, she's founded and sold her own marketing firm, served as COO of the Scent Marketing Institute and launched a second marketing company — which she still runs today. Dublino holds a bachelor's degree in business administration and an MBA in marketing and finance, both from the University of Miami. Her expertise, which extends to all facets of business operations, from POS systems to compensation management, has been quoted in AdAge, Adweek, Reuters and other outlets.
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