Everything you need to know about inventory management systems

Boxes in a manufacturer's storage with QR codes, surrounded by shelves of inventory.

Inventory management systems are the backbone of any successful physical goods business. They help coordinate the ordering, shipping, and storing of products while minimizing the costs associated with each operation.

To get the most out of an inventory system, it’s crucial to understand how they fit into the larger context of your business. Below, we’ll discuss the importance of inventory management systems, their various types, how they work, and the key features to look for when choosing one.

Let’s get started!

Katana inventory management system

Get started with an inventory management system specifically built for manufacturers with the 14-day free trial and optimize how you handle items.
*No credit card required

What is an inventory management system?

Manufacturers are turning to green manufacturing.

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.

Why are inventory management systems important?

One word:

ROI

By managing the logistical side of inventory, businesses can save time and money while increasing customer satisfaction, yielding double dividends and more streamlined operations. 

For instance, with proper inventory management, businesses can accurately forecast their demand and avoid overstocking or understocking their products. This helps them save money by avoiding costly stockouts and carrying costs while also helping ensure customers get the products they want when they want them. 

Stock management systems also allow for better visibility into the supply chain, allowing businesses to quickly identify any potential issues that may arise, such as bottlenecks in production or delays in shipping. This helps businesses stay on top of their operations and ensure that all parts of the supply chain are working together smoothly.  

Finally, having accurate inventory data allows businesses to make more informed decisions about pricing, promotions, and marketing strategies. This helps them maximize profits while also ensuring customers get a great product at an attractive price point. 

Let’s cut to the chase

Inventory management systems come in all different shapes and sizes — some are specifically built for certain industries. Want to try and figure out which is best for you? Check out this article on the 7 best inventory management software solutions in 2023

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

Is essential if you’re looking into improving your entire manufacturing business.

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 4 types of inventory management?

As a business owner, you know that inventory is crucial to your success. It's what keeps your shelves stocked, your customers happy, and your business running smoothly. But what you might not realize is that your inventory management system is just as important as the inventory itself.

There are four primary types of stock management systems: 

  • Manual 
  • Barcode-based 
  • RFID (radio frequency identification) 
  • Automated 

Manual inventory management 

Manual is the most basic type of inventory management system. Here, businesses manually track their products using paper forms or spreadsheets. This type of system is suitable for small operations where tracking a few dozen items isn’t an issue. However, it quickly becomes cumbersome as the number of items grows and is not recommended for larger operations. 

Barcode-based inventory management 

Barcode-based systems are the next step up from manual inventory management and offer more accuracy than manual systems. Here, items are assigned a barcode which is then scanned whenever they’re moved into or out of inventory. This allows for quick and accurate tracking of products as well as real-time updates on stock levels. 

RFID inventory management

RFID (radio frequency identification) takes things one step further by using radio waves to track products in real-time without having to scan barcodes.

This allows businesses to quickly and accurately track their products without the need for manual intervention, making it ideal for large-scale stock management systems with potentially thousands of items in inventory.

It is also great for businesses that handle massive items or parts like shipbuilding operations or large containers of raw materials. The RFID tag can be placed anywhere on the item, which allows it to be accounted for as it passes through a loading bay or other scanning port. 

Automated inventory management 

At the highest level is automated inventory management. Here, businesses use robotic systems to quickly and accurately move products into and out of their warehouses, think conveyer belts, automated pickers, and robotic arms. This type of system is ideal for enterprise-level businesses with high-volume operations and saves them time and money in the long run. Understandably, these systems are extremely expensive and require a significant upfront investment.

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.

Manage your inventory with a system for manufacturers

Upgrade your workflows with an inventory system for free for total visibility of your entire business and make important decisions in real time.

Katana: Streamlined resource planning software for robust inventory management

Katana manufacturing resource planning software helps you implement JIT

Katana is a cloud-based material requirements planning system for stock management that provides businesses with real-time, accurate insights into their stock levels. It offers sleek integrations with popular e-commerce providers like Shopify, making managing both online and offline stores easy. 

Live inventory management

A comprehensive live management system lets you keep tabs on your stock levels at all times, allowing you to adjust them as needed. This helps ensure that you always have the right amount of product, letting you respond quickly when demand changes. 

Easy contract manufacturing and supplier management

Katana also makes it easy to manage and track your contract manufacturing processes. With intuitive supplier management tools, tracking materials for outsourced production jobs is a breeze. 

Omnichannel order management

Whether you’re selling B2B or straight to consumers on an e-commerce platform, Katana allows you to manage orders from a single platform. This helps ensure that orders are fulfilled quickly and accurately no matter what channel they come in on. 

End-to-end traceability

Finally, the end-to-end traceability feature allows you to track the whereabouts of any item in your inventory. This is especially useful for businesses that need to comply with safety regulations or those selling perishable goods. 

Sign up for a 14-day free trial today

With the platform’s robust reporting capabilities, businesses can gain insight into their inventory performance and make informed decisions about their stocking strategies. Katana’s intuitive online inventory management system also makes it simple to forecast future demand and plan for any potential issues that may arise, whatever the platform. 

Want to upgrade your inventory management system and reap the rewards? Get a free 14-day trial of Katana today! 

Get the visibility you need to move products and make decisions
Start a free 14-day trial*
*No credit card required