What is an inventory management system? It’s a platform that allows you to follow your inventory as it moves across various touchpoints, so you always know the right next step to take. 

In your quest to satisfy suppliers, manufacturers, distributors, and customers, it’s important to keep an eye on your inventory and its movement across the supply chain. An inventory management system can give you this visibility.

Today, we’re exploring the features of these systems so you can make an informed investment. 

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What is an Inventory Management System?

Inventory management software – whether part of a supply chain management system, part of an ERP system, or standalone – helps companies proactively monitor their product levels, as well as their orders, sales, and deliveries.

Businesses use this software to:

  • Maintain ideal inventory levels
  • Keep products in stock
  • Prevent product spoilage 
  • Track goods during transport
  • Accept new items
  • Manage warehouse processes (e.g., picking and packing)

In the past, these processes were manual in nature. Employees had to perform product counts by hand and record those updates on paper.

Digitization has changed the face of modern inventory management for the better. Organizations no longer have to settle for ineffective inventory management practices.

inventory management system

The Costs of Ineffective Inventory Management

It’s important to make sure you’re closely managing your inventory. Otherwise, you could run into a host of issues that could negatively impact operations, employee morale, and customer satisfaction. 

Here are a few of the potential setbacks you could experience without a dedicated inventory management solution in place. 

1. Excess Stock

Excess inventory isn’t doing your company any good sitting stagnant in a warehouse. As these items continue to pile up, you’ll likely need to purchase additional storage space, which heaps costs onto your supply chain. 

If this occurs with perishable items, the problem is even more serious as it poses a health and safety risk. 

2. Not Enough Stock ​

On the other side of the coin, consider the implications of one of your best products selling out.

Stockouts not only cost you potential profits, but they can also damage your brand reputation. Today’s buyers are more discerning than ever before, and they won’t think twice before buying the same thing from one of your competitors. 

This risk is mitigated when you implement an inventory management system because it provides the data insights necessary to predict demand increases. 

3. Longer Lead Times

When you can stay ahead of your stock, you can anticipate when and where demand surges may occur. Then, you can put steps into place to get those items in your warehouse to avoid lengthy lead times and delays. 

Businesses that are slow to adopt inventory management systems may find that the items they need are backordered or unavailable when they need them. In turn, they’re unable to meet buyer expectations for lightning-fast turnarounds. 

Inventory Management Software Considerations

The Periodic Method vs. The Perpetual Method​

If your inventory management system follows the periodic method, then it receives data periodically. This approach is ideal for smaller businesses that only need to maintain a limited amount of product. 

With the perpetual method, the system receives data on a continuous basis. This keeps inventory levels up-to-date, so fewer physical counts are needed. Larger businesses with a greater number of products benefit from the perpetual method. 

Barcode Systems vs. RFID Tagging

With a barcode system, an employee uses a handheld device to scan products in or out. In turn, levels automatically update in the inventory management system. Many barcode systems also employ mobile scanners to expedite this process. 

Radio Frequency Identification (RFID) systems use fixed readers to scan items as they move around the warehouse. As this happens, the data automatically updates in the inventory management system. While RFID strategies can be more expensive to implement than barcode systems, they can also be more efficient and require less direct employee involvement. 

Benefits of an Inventory Management System

The right technology can allow you to deliver your products more quickly to the people who want them the most. It also gives you insight into your product levels at all times, so you can make sure you’re working with the right quantities. 

As a result, you can bolster customer satisfaction, improve team collaboration, and strengthen partner relationships across the supply chain. Here are a few of the other benefits you can expect. 

1. Optimized Stock Levels

An inventory management system makes sure your warehouse is never over-stocked or under-stocked. Both scenarios can cost your company money in lost profits, so it’s critical to know exactly how many products you need to keep on hand. 

2. Improved Warehouse Organization

When your stock is well-managed via an inventory management system, a neater and better organized warehouse is the natural output. In this environment, your warehouse employees know exactly where to go to find what they need. This means they spend less time pacing the floor, searching for missing items or tracking products by hand. 

3. Higher Customer Satisfaction

When you can track your products at any time, in any location, you can deliver more accurate and timely updates to your customers. In addition, orders ship on time and at a faster rate than before, allowing you to exceed expectations and encourage repeat purchases. 

The Relationship With ERP

Most comprehensive ERP systems include inventory management software. This unifies the following business elements into one cohesive platform:

  • Inventory
  • Accounting
  • Supply chain management
  • Point-of-Sale 

Whether you’re looking at ERP solutions or standalone inventory management systems, you must keep the following considerations in mind. 

1. Systems Integration

A standalone inventory management system should integrate seamlessly with your other front-end and back-end business applications. Before selecting a system, make sure it’s compatible. 

2. Tracking Features

Inventory management systems offer a range of different tracking features and capabilities. Each one comes with its own benefits and drawbacks, so be sure to select features that make sense for your business needs.

3. Cloud vs. On-Premise

It’s typically more cost-effective to deploy your inventory management system in the cloud, rather than storing everything in an on-premise solution.

An on-premise system can be more time-consuming and laborious to deploy and maintain. They can also be cumbersome to update. 

4. Data Analytics

Another reason to stick with a cloud-based inventory management solution? Users have real-time access to inventory tracking updates, and they can use those updates to generate accurate, up-to-the-minute reports. 

Business leaders can then analyze these reports to fine-tune their approach and facilitate collaboration. 

5. Scalability

While it’s important to set and stick to a budget, remember that system performance and reliability should be top considerations. Don’t sacrifice scalability just to save money in the short term, as doing so could cost you down the road. 

6. AI Capabilities

If your budget allows and the need is there, consider looking for a system that leverages the power of artificial intelligence (AI) and machine learning. These tools can learn your operations and provide expert recommendations based on data from every area of the supply chain. These tools can also predict trends, so you can stay one step ahead.

Your Next Step

What is an inventory management system? It’s a platform that could revolutionize your warehouse operations from the inside out. 

Inventory management capabilities are especially important if your business has an extensive warehouse operation and needs real-time insight into product status. 

To learn more, contact our enterprise software consultants below.

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