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Inventory, warehouse, and distribution technology for logistics professionals

What Is an Inventory Management System, and What Features Do I Need?

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Being better at tracking the stuff you have is a great way to make more money.

When you track your products, you can predict how much you’ll sell in the future, find them faster for your customers, and reorder before you run out of product. How novel!

One of the best ways to do all that tracking, predicting, and reordering is to use an inventory management system. Today, we’ll look at what that means, what features to be on the lookout for, and what you can accomplish with a good system in place.

what is inventory management system

What is an inventory management system?

Inventory management systems track goods through the entire supply chain or the portion of it a business operates in. That covers everything from production to retail, warehousing to shipping, and all the movements of stock and parts between.

Practically, it means a business can see all the small moving parts of its operations, allowing it to make better decisions and investments. Different inventory managers focus on different parts of the supply chain—though small businesses are usually more interested in the ordering and sales end of the chain.

Because of their wide variation in scope, inventory management systems also vary widely in cost. Software Advice’s FrontRunners report for inventory management gives you an idea of what that price/features mix looks like.

Inventory management software features

Let’s start at the beginning and work our way toward the point of sale.

Again, the software you choose to manage your inventory could offer any, or all, of these features, depending on your needs and budget. Each industry has its unique requirements, but all inventory management systems will likely include:

  • Barcoding
  • Reporting tools
  • Inventory forecasting
  • Inventory alerts
  • Accounting tools or tie-ins

Manufacturing inventory management

The manufacturing process revolves around work orders and bills of materials. Inventory management at this point in the process is all about tying work orders and bills to your existing materials. That means you’ll find:

  • Materials tracking
  • Inventory levels for parts and finish products
  • Automatic reordering
  • Integrations with ERP or maintenance software

By tracking the work you’re doing and the materials required to produce that work, you, well, make money. It’s close to impossible to run a profitable manufacturing business without some sort of inventory management system in place.

The only real question is how much of the process you want to track. Do you need to automate reordering, tie into a warehouse management system, or track uptime for your machinery? Those are all possible extensions within the manufacturing inventory management system.

Warehouse inventory management

Managing a warehouse is a different beast and requires different system features. Warehouses are most interested in where an item is. Of course, having the right number on hand is important, but the real value in inventory management in a warehouse setting is being able to find something quickly.

You’ll commonly see features including:

  • Advanced barcode systems supporting QR and other standards
  • Multiple location support
  • Shelf and bin tracking systems
  • Order picking support

From there, you can order more inventory and pick your existing inventory for customer orders.

One of the major benefits of software-based warehouse management is that it frees you from the confines of your human mind.

Here’s what I mean by that:

You think the letter paper and legal paper should be next to each other in the warehouse because—well, obviously they should be. You want paper, so you head to aisle Z4. Voila! Paper. What you don’t realize is that letter paper is often ordered at the same time as staples. Letter paper is almost never ordered at the same time as legal paper.

In reality, you should be stocking the legal paper over in Z6, and staples and letter paper together in Z4.

This makes it harder to conceptualize the warehouse, but it makes picking stock easier and faster. Warehouse inventory management software can help you uncover those types of issues.

You can also set restocking levels so you’re never caught without a popular item. Actually, it’s more likely that a good system will keep you from being caught without an unpopular item—the one you don’t notice is out or low until a huge order comes in, and it’s too late.

Retail inventory management software

In its final iteration, inventory management systems help retailers keep their businesses running smoothly and profitably. From our friends at SoftwareAdvice:

“The primary goal for [retail inventory management software] is for users to reorder items before they become fully sold out. Having adequate levels of inventory helps users capitalize on sales opportunities. Of course, it is important that retailers don’t order too much of an item and face not being able to sell it all. Robust systems can help users strike that delicate balance of ordering just enough but not too much.”

A good inventory system can keep shelves as full as they need to be. At its extreme, this is called “just-in-time” inventory management, which prioritizes minimizing cash tied up in product over maximizing inventory buffer.

There’s a lot more going on in this scenario, so you’ll see:

  • Order picking support
  • Automatic reorder
  • Inventory forecasting tools
  • Barcoding support

Of course, you can set all your reorder points based on your business’s goals. Maybe you want to have five times the buffer of your competitors—that’s up to you.

Finding the right inventory management system

Once you have a list of your required features in place, you can find the system that’s going to work right for you. Capterra, conveniently, has an inventory management software directory with over 275 options. You can filter by user rating, feature set, and number of users.

You can also check out our list of free options, which might be a perfect option for companies just starting out or those with some technical knowledge floating around. Find whatever option works for you, put it in place, and start working smarter.

Looking for IT Management software? Check out Capterra's list of the best IT Management software solutions.

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About the Author

Andrew Marder

Andrew Marder is a writer for Capterra. His background is in retail management, banking, and financial writing. When he’s not working, Andrew enjoys spending time with his son and playing board games of all stripes.

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