Everything you need to know about inventory management systems

What is an inventory management system?

Inventory management systems (also referred to as stock management systems) are processes and software platforms that integrate with your existing business operations to help you manage and optimize the flow of goods within your supply chain. 

Inventory management system definition

Inventory systems provide a comprehensive overview of all incoming and outgoing inventory positions, helping suppliers meet customer demands while keeping costs low. They also provide detailed analytics that can be used to identify areas for improvement in terms of efficiency and cost savings.

Inventory management systems come in many different shapes and sizes, ranging from simple cloud-based solutions to enterprise-level systems with multiple modules and sophisticated analytics. 

Traditionally, most companies used manual processes to manage their inventory, but automated inventory management systems are quickly becoming the norm due to their many benefits.

What should you look for when choosing an inventory management solution?

There are many different types of inventory management solutions out there, ranging from basic spreadsheet-based systems to sophisticated cloud-based software packages. It’s important to choose the right solution for your business needs and budget — but it can be tough if you’re not familiar with the lingo.

Let’s dive deep into the key features to look for in an inventory management system.

1. Automation

The most important feature of any inventory management system is automation. Automation allows businesses to streamline their operations and save time, money, and resources, leading to greater efficiency and productivity. We’d go as far as to say that an inventory management system isn’t actually an inventory management system unless it offers some level of automation. 

Look for inventory management solutions that offer advanced features such as automated ordering, tracking and notifications, stock control, and more. This will ensure that your business processes remain streamlined and efficient at all times. 

2. Scalability 

Scalability is another key factor to consider when choosing a stock management system. Your business might be small now, but what happens if you suddenly experience a surge in demand? You’ll need a management system that focuses on

maintaining lean inventories while also capable of scaling up with your needs — otherwise, you may find yourself stuck dealing with manual processes and paperwork. 

Look for solutions that offer flexible pricing plans and the ability to add additional features as needed. This will ensure that your inventory management system can grow and evolve with your business. Ideally, your inventory management system would also allow you to forecast future needs, so you can be prepared for any sudden spikes in demand (seasonality? recurring orders? etc).

3. Integration 

Finally, you’ll want to look for an inventory management system that offers integration with other business systems and processes. This will enable your business to streamline operations further by automating data exchange between different applications (such as accounting software or online storefronts). It also allows you to easily access essential data across multiple platforms, which can be invaluable when making decisions. 

For instance, a big issue physical goods businesses often suffer from is rectifying their bookkeeping and inventory records. A well-run inventory system would integrate directly with bookkeeping software like Quickbooks, keeping the records in sync and avoiding any discrepancies.

What are the 3 inventory control systems?

When it comes to inventory management systems, there are three primary types: 

• Periodic 
• Perpetual
• Hybrid 

Periodic inventory control systems

Periodic inventory control systems require manual counts of stock at regular intervals (typically monthly). This type of system works best for smaller businesses with limited resources or those that don’t have the need to closely monitor their stock levels. 

As an example of a periodic inventory management system, a company could set a recurring calendar reminder to check inventory levels on a monthly basis.

Pros of periodic inventory control systems

Generally, a periodic inventory system is the most cost-effective type of inventory management system. They also require minimal training and setup, making them a great choice for businesses just starting out. 

Businesses that routinely employ seasonal workers can also benefit from periodic inventory control systems, as they don’t require the same level of ongoing training and supervision. Additionally, this type of system is ideal for businesses that don’t need to accurately track stock levels on a daily basis.

Cons of periodic inventory control systems

The downside of periodic inventory control systems is that they can be inaccurate and don’t offer real-time visibility into stock levels. This means it’s difficult to quickly adjust ordering patterns or take advantage of sales opportunities in a timely fashion. Additionally, businesses using this type of system have no way to identify which items are selling fast or slow until the next count is conducted. 

Perpetual inventory control systems

On the other hand, perpetual inventory control systems allow you to track your products in real time by tracking every sale, purchase, and return. This type of system is ideal for larger businesses that have to keep an eye on their inventory at all times. 

For instance, after each order, the stock levels are automatically adjusted through a form or automated checkout system.

Pros of perpetual inventory control systems

The biggest benefit of perpetual inventory control systems is that they offer real-time visibility into stock levels. This means you can quickly adjust ordering patterns or take advantage of sales opportunities in a timely fashion. 

Additionally, businesses using this type of system can identify which items are selling fast or slow and adjust their stocking strategies accordingly. Second-order metrics such as these often play an important role in maximizing profits. 

On top of all this, perpetual inventory control systems also provide an audit trail that can be used to track down any discrepancies in stock levels. Depending on the size of the business, this can be a critical tool in terms of reducing fraud and improving operational efficiency. 

Cons of perpetual inventory control systems

The downside of perpetual inventory control systems is that they generally require more time and resources to set up, as well as ongoing maintenance. Additionally, these types of systems tend to be more expensive than periodic ones due to the extra hardware and software needed.

Perpetual inventory monitoring systems often range from complex enterprise resource planning (ERP) systems to simple, cloud-based solutions. Depending on the size and needs of your business, you may need to invest in a full ERP system that integrates with other aspects of your operations for best results.

Hybrid inventory control systems

Finally, hybrid inventory control systems blend the two approaches together. This type of system allows for both manual and automated tracking of stock, ensuring that businesses can always stay on top of their inventory. 

Pros of hybrid inventory control systems

Hybrid inventory monitoring systems offer the benefits of both periodic and perpetual systems. They allow for the flexibility and cost-effectiveness associated with manual counting, while also offering real-time visibility into stock levels. 

This type of system for stock management is ideal for businesses that need the automated features of a perpetual system, but don’t need to track every single item in their inventory at all times. Additionally, some hybrid systems can be integrated with existing ERP systems, allowing you to get the most out of your investment. They’re a great pick for outfits that operate in both the physical & virtual space⁠ — think retail stores and e-commerce businesses. 

Cons of hybrid inventory control systems

Hybrid systems can be more complex to set up than either periodic or perpetual systems, mostly due to the interplay of the two (manual vs. automatic entries). Additionally, some of the more advanced features may require additional hardware or software investments — think barcode scanners for automating inventory counting, for instance.