inventory management software

Understanding inventory management: techniques, benefits, and what is inventory management software

Inventory management is the process of keeping track of all the goods that a company has in stock. And there are multiple benefits of inventory management within a small business organization that extend beyond what meets the eye. Having too much stock not only weighs you down monetarily but also takes up stock room space. However, understocking can mean delayed deliveries and unhappy customers. Inventory is integral to every business dealing and therefore, inventory management has a large role in your company’s success. For modern manufacturers, it is important to have systems which can make their life easier even as they focus on the growth of their business. Here is the ultimate lowdown on all that you need to know about inventory management. 

What are Inventory Management techniques?

Before we go into the details, let us have a basic understanding of what is inventory, etc. There are several definitions of inventory but in simple terms, it is the sum of all items used in a business including anything related to business operations. Some examples include safety or office equipment, etc. The items of an inventory can be broken down as follows.

Raw materials

– Components which can be used to create products;


– Items in the process of becoming finished products; and

Finished goods

– Products that are completed and ready to be sold. MRO goods: Abbreviation for maintenance, repair, and operating. It’s the
  • MRO goods: Abbreviation for maintenance, repair, and operating. It’s the inventory you keep to support the manufacturing process
  • Safety Stock: Additional inventory you keep to deal with supplier shortage/surges in demand

One of the main issues that makers often face is that of having to deal with the constantly moving pieces of raw materials and the finished products. It is therefore important to understand that inventory is dynamic and the first step to attaining fluidity is through management. This makes it easier for the company to look for the right tools to keep track of their stock.

What is the inventory management process?

The inventory management process is a crucial part of cost control and supply chain management that helps enterprises balance the risks of inventory shortages and demand management.

What is inventory management software

An inventory management software or system is a tool that enables businesses to keep a track of their goods and orders across the supply chain. Not only does it optimize the complete spectrum spanning from order placement to delivery, it also effectively maps the entire journey of a product seamlessly. Besides, the transparency that this software offers creates a big positive impact on the bottom line of an enterprise.

How does inventory management software work?

An inventory management software can help in keeping the inventory information up to date and free of human errors. It can also help in taking care of small business needs including sales and accounting.

Features and benefits of inventory management software

Here’s an overview of the features and benefits that an inventory management software offers.

  • Identify, label and track your products easily with barcode scanning
  • Optimize the inventory without over or under stocking any item and manage any rise and fall of demand
  • Generate reports in the form of lists and identify which items didn’t meet the sales level you expected
  • Integrate multiple warehouses and POS within a single software
  • Handle stock returns effectively through automation of the entire process
  • Inventory grouping·        
  • Create a single view of purchase order records

The Difference Between Inventory and Stock

Often, business owners, retailers, and manufacturing experts use the above two terms interchangeably. However, it is really a matter of personal choice. It is good to be specific about how to distinguish between the types of inventory that a business deals with. To remove any uncertainty, it is better to mention the type of inventory that a company is referring to. The main forms of inventory include raw material, work-in-progress, finished goods, MRO (Maintenance, Repair, Overhaul); and assembly items.

Inventory Management vs Inventory Control

Again, these are two terms that are used interchangeably. Inventory control is one aspect of the broader discipline of inventory management. Inventory control is about understanding where the inventory is and ensuring it reaches the right place for efficient and timely manufacture of finished goods. Inventory management includes aspects like cost of purchasing raw materials, carrying costs of inventory, and inventory processing overheads. It is about how inventory fits into your overall business plan and success metrics and ensuring that production is efficient enough to be profitable. A good manufacturing inventory management helps in saving time, money and resources thereby ensuring complete peace of mind. The end goal is positive customer experience and overall customer satisfaction.

What is Inventory Management Process?

The right implementation of Inventory Management Process [IMP] allows you to monitor and oversee purchases, streamline your operations, maximize your Return on Investment (ROI) while lowering down the expenses. In short, it optimizes and simplifies your business processes.

Managing the inventory is crucial for the proper functioning of the businesses irrespective of how small/large it is. A generic inventory management process involves the following stages:

  • Purchasing: It involves purchasing the raw materials to convert them into products OR buying developed products directly to sell with no assembly required
  • Production: It involves assembling all segregated parts into one unified product. Most corporate organizations skip the manufacturing step entirely
  • Holding Stock: This stage talks about storing the raw materials before they enter the manufacturing (production) stage, & your finished goods before they are sold out
  • Sales: This stage is the delivering stage of the product/stock into customers’ hands & taking the payment in return
  • Reporting: This stage involves creating financial reports to track how much organizations are selling, and how much money are they making on each sale

Features of Inventory Management Software

Different businesses can have varying requirements depending on their number of clients, the policies, etc. Based on these requirements, the organizations need to choose a dedicated inventory management software. However, choosing the right software from a plethora of options ain’t easy.

That being said, you must ensure that whatever software you pick helps you manage your inventory on all aspects and isn’t missing out on the following list of features:

  • Barcode Scanning: To help you identify and track your products using labeling and product identification markers
  • Inventory Optimization: Helps you keep the right amount of inventory in your warehouse for each item/product to avoid shortage or surplus quantity. This practice comes handy if you’re dealing with products that experience a seasonal rise and fall in demand.
  • Stock Notifications: The software must give you instant alerts whenever the stock goes up/down w.r.t a given threshold. It helps you clear out extra stock via discounted offers or place new orders in time.
  • Custom Reports: The software must allow you to generate custom reports detailing your sales history, manage items that haven’t yet reached their expected sales levels.
  • Multi-location Support: Ensure that the software you pick facilitates the integration of different point-of-sale (POS) to streamline the inventory management process

Different Types of Inventory Management Techniques

Having understood the literal meaning of the term ‘Inventory Management’, the features you must look out for in an inventory management software, the following segment gives you a quick overview of the different types of investment management techniques often utilized for inventory management.

There are different types of inventory-management and control techniques that you choose to utilize.

Economic order quantity

It helps the organization decide how much quantity they must purchase for its inventory with the end goal of minimizing the purchasing costs. To compute it takes into consideration the following set of variables – the total cost of production, demand rate, no of units in the delivery of and storing inventory unit costs to release tied-up cash in inventory.

Minimum order quantity

This is the smallest amount of set stock that a supplier is willing to sell. The supplier will not sell if the retailer is unable to purchase the MOQ of a product. For example, the inventory items that cost more in terms of production have a smaller MOQ when compared to cheaper items that are easier to make.

ABC analysis

This technique splits subjects into three categories. It helps identify items with a heavy impact on the overall inventory cost. Category A has the most valuable products which contribute to overall profit. Category B includes products that lie between the most and least valuable products. Category C is small transactions that are crucial for overall profit but do not matter individually.

Just-in-time inventory management

This technique is about arranging raw material orders from suppliers in direct connection with production schedules and helps reduce inventory costs. This makes sure that the inventory comes in on a need basis and that there is no risk of dead stock or ordering too much. Dead stock refers to inventory that was never sold before being removed from the sale status.

Safety stock inventory

Inventory that gets ordered above the expected demand and thus prevents the shortage of supply caused due to incorrect forecasting or unforeseen changes in customer demand.


Both these methods help in determining the cost of inventory. FIFO refers to First in, First out, assuming that the older inventory gets sold first. It helps in keeping the inventory fresh. LIFO refers to Last-in, First-out, assuming that the newer inventory is sold first; this helps the inventory from going bad.

Reorder point formula

This inventory management technique is based on the own purchase and sales cycles of a business – which further varies on a per-product basis. A reorder point is usually higher than a safety stock number to factor in lead time.

Batch tracking

This is the quality control inventory management technique in which users can group and monitor a set of stock with similar traits. It helps in tracking the expiry of inventory or trace defective items to their original batch.

Consignment inventory

This is where a consigner (vendor or wholesaler) agrees to give their goods to a consignee by paying upfront for the inventory. The consigner continues to own the goods and the payment is done by the consignee only when the goods sell.

Perpetual inventory management

This simply refers to counting inventory when it arrives and is the most basic inventory management technique. It can either be recorded with pen and paper or through a spreadsheet.


In this technique, the store does not keep the products that it sells in stock. During the sale, they purchase the item from a third party and then have it delivered to the customer.

Lean Manufacturing

This technique can be applied to any business practice and the goal is to improve efficiency. The technique eliminates waste and non-value-adding activities from daily business.

Six Sigma

This brand of teaching helps companies with tools to improve the performance of their business by increasing profits and decreasing the growth of excess inventory.

Lean Six Sigma

This enhances the tools of Six Sigma and focuses more on increasing word standardization and the flow of business.

Demand forecasting

This technique is based on historical sales data. It helps in formulating an estimate of the expected forecast of customer demand.


In this technique, an incoming truck unloads materials directly into outbound trucks to create a JIT shipping process. There is little or no storage in between deliveries.

Bulk shipments

This is a cost-effective technique. It helps in palletizing inventory to ship more at once.

Benefits of inventory management

Every successful e-commerce and online retail brand has an effective inventory management system in place. It is possible to achieve several of the benefits of inventory management with a strategic plan in place. This further optimizes the process of overseeing and managing inventory, including real-time data of inventory conditions and levels. Some benefits of inventory management include the following.

Accurate Order Fulfillment

Imagine a scenario in which the customer has placed an order with an e-commerce brand but the item is out of stock in the warehouse!. Even worse, the brand ships the wrong item to the customer. We have heard several such instances. To avoid inaccurate fulfilment of orders, high return volumes and loss of customer base, every business must take out the time to develop a more robust plan.

Better Inventory Planning and Ordering

It can become difficult to understand what products are needed if the company doesn’t know what is stocked. When online retailers do not manage their inventory properly, there is a high likelihood of overstocked items, some of which may not even be strong sellers. Inventory management avoids such issues and allows warehouse managers to refresh inventory only when needed – as a result, becoming both space and cost-effective.

Productivity and efficiency in Operations

This is one of the major benefits of inventory management. When you keep stock, it means that your money is tied to them, that is, you can’t spend this money. Every company wants to manage their stocks efficiently so that the business’ cash flow is positive. A good report and analytic system can help you see which products are selling fast through your multiple sales channels. This will help you make smarter decisions when purchasing supplies. If you need to manage batches and expiry dates, multi-matrix product variants, or handle complex measurement units, then you need to invest in a cloud-based inventory management software that will make your tasks easier and efficient.

Increased Consumer Satisfaction

Customers who shop online await their orders and nothing can be worse than them not receiving the order on time or as expected. Buyers would be less likely to purchase from a brand where such issues arise. With good inventory management, orders are fulfilled quickly and satisfactorily. This level of user experience and satisfaction ensures that the brand builds a strong portfolio and will keep customers coming back for more.

This is done by minimizing the fulfillment time and keeping customers happy. With a great inventory management system, you will be able to keep fast selling products in stock and fulfil them, as soon as possible. Your system should be able to handle customer orders readily and efficiently while taking care of returns and exchanges as well.

Minimizing costs, maximize profits and sales

The key to understanding inventory management is being aware of managing orders across various sales channels; especially, if you want the sales to stream in from your online and offline stores. With the knowledge of types of inventory management techniques and a great tool, you can minimize the loss of sales. Inventory control is important if you want to reduce the carrying costs of holding stock. Also, keeping stock in warehouses can get expensive. Carrying costs will include storage fees, taxes, natural disasters, and passing trends that can eat your profits. Therefore, the benefits of inventory management software include minimizing any extra costs, along with analyzing your past sales and purchasing patterns.

User management

A key feature of the inventory management is user management. You can create user accounts for each employee in your departments, define job roles, and assign permission to each user. This way they will only have access to functions and modules that are connected to their job responsibilities. 

Tasks and notes

This will enable collaboration between your team members. The staff can easily share and handover information, without any trouble. It will also help them collaborate on customers, suppliers, invoices, products, and shipments.

Automating manual tasks

This is a fairly recent addition to the benefits of the inventory management software list. No employee wants to sit around and do manual data when it can be automated; especially if they include complex calculations with every purchase order. It’s best to leave it to software that can automate these tasks for you.  Features like bar code scanning will create sales orders directly by scanning items in the shipment. You can dispatch goods by scanning them as well. Some of the common issues faced by distributors and wholesalers include the calculation of landed costs. A good inventory management software will split landed costs by the purchase cost of the product’s proportion, which will save you time, mistakes, and effort.

You can use a B2B e-commerce platform that lets you start a purchasing account for customers, along with a product listing that is personalized and custom price lists.

Customers can check out their purchases by using an online cart. The purchases will automatically appear as sales orders in the system. This saves you time that could be spent on selling time and needless data re-entry.

Better accuracy in inventory orders

Some of the critical requirements of good inventory management include accuracy of product orders, status, and tracking. A fulfillment partner who’s effective will have tools like real-time software and systems. This will further ensure that no product is left untracked throughout the fulfillment process.

Organized warehouse

A good inventory management strategy also means a fulfillment centre that is more organized. This leads to more efficient fulfillment plans now and forever along with other benefits such as cost-savings and improved product fulfillment.

Increased efficiency and productivity

When a company has a proper inventory management, there are less resources and time invested in managing inventory. It can also be allocated to other areas. Such warehouses make use of technology to hasten the tracking and fulfillment operations, ensuring that inventory records are accurate.

Savings in time and money

With improved ordering accuracy, efficiency, and product flow, overall, a good inventory management leads to savings in time and money.

Repeat customers

When the inventory management process is effective, it protects from incorrect or damaged goods being shipped to customers. This further enhances customer experience and removes issues such as refunds. The business will also have repeat buyers.

Why is Inventory management software important?

As we saw above, having an inventory management system in place is extremely important for business growth, success, and revenue generation. This is because inventory can become a big expense for businesses. Inventory management can have a positive impact on all business aspects including customer services. Nowadays, many organizations have started making use of what is called an inventory management software to monitor the required products according to customer’s demand. An inventory management software also allows the accounts and management departments of an organization to function smoothly and effectively. Some other reasons why inventory management software is important are as follows.

Inventory Order Management

With inventory management software, businesses can track and order products that are needed as per the client’s demand. The software helps in tracking the availability of products in stock in real time and helps in the generation of order for good sale items. The company will thus be able to identify the items that sell the most and restock them accordingly. An inventory management software will help in maintaining a record and lead to better customer satisfaction.

Business Revenue

A business owner is always concerned about having the most selling products in place always. This is where an inventory comes in as one of the major ways to generate revenue and profit for the business. With an inventory management software in place, the business owner would be able to have a real-time update on the products in stock and get first-hand info. Apart from this, the software will also update on other aspects including revenue and profit.

Inventory Management

With inventory management software, a business owner would be able to greatly maximize profits. This is because the software makes it easier to manage the arrival, purchase and selling of stock. For business owners who order large quantities of stock, there will be a lot of time needed by the employees for organizing stock and maintaining the record. When a certain stock is not available, it can put extra pressure on the customer services department. With inventory management software, all these processes become easier and it also helps with better management of records.

Price Management

When the inventory stock is well managed, it is easier for a business to handle the product cost. A business that uses inventory management software can also find the best market deals. These further help in driving towards the purchase of items at a lower price. For a business that purchases a high volume of products, products at a lower price would accrue benefits in the form of increased selling. This is because inventory management software allows for tracking the cost of products from purchase details and prepares a comprehensive report in just a few clicks.


An inventory management software also helps in tracking the inventory turnover. It allows business owners to acknowledge their selling products and order quantity and in turn, they would be able to keep the selective stock which sells more. All this will further translate to a boost in revenue.

Integration of Entire Business

After your sales representative has created a sales order, an inventory management software can help different departments focus on their part of the job as well as keep track of it as the orders make their way from sales to fulfilment. Let’s see how an inventory management software works to make this happen.

Firstly, the software creates user accounts for staff from different departments and then defines job roles and clear user permissions for them. This ensures that your staff get access to only those modules and functionalities that is a part of their job responsibility. However, the staff can seamlessly share and handover information among other members of the team.

Secondly, with inventory management software in place, the operations team can easily pack all the items and quantity according to the sales order and create a shipment. It can also help them take care of those items that have not yet been shipped. After the customer confirms the order has been received, the team can mark it as delivered.

Automation of Manual Tasks

Your team has critical tasks to focus their efforts on, and it’s not the best to let them sit around and carry out complex and manual calculations associated with purchase orders. Rather, you can let inventory management software automate these tasks. The software implements barcode scanning technology that lets you scan items to create sales orders right away as well as dispatch goods in a shipment.

An inventory management software also helps in the calculation of landed costs and apportion of additional costs like customs duties and shipping. Moreover, if you are involved in B2B e-commerce, let’s see what are the inventory management techniques this software can help you with? You can use the software to open a purchasing account for customers and offer them personalized product listings and price lists. Customers can check out their purchases using an online cart, and you will be able to see their purchases as sales orders in your system saving you time on re-entering this data.

Trend Analysis

Perhaps the most amazing aspect of an inventory management software is that it helps work out a deep analysis of trends which can then be reviewed by the management. It makes it possible to see which are the most selling products and the vendors with the most demand from customers. They also display seasonal products that are in most demand during specific times. Apart from sharing business insights and product details, the most impressive aspect of an inventory management software is perhaps the capability of keeping the shelves open. With an effective inventory management software, it will also be possible to sort out products and create space for upcoming trending stock.

An inventory management software thus helps in not only running a business but also streamline its operations in a way more efficient and cost-effective manner. An inventory management software also ensures that the products in stock are of the topmost quality. Every business needs certain metrics including excellent customer service – this is perhaps the most important. By implementing the right software, it is possible to enhance customer services and it will also be an important link between the manufacturer, distributor and the retailer.