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Inventory Management software is used to track, manage and organize inventory levels, orders, sales and invoices. The software is commonly used alongside hardware such as barcode or radio-frequency identification (RFID) scanners.
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Inventory management is one of the most critical functions of a business that sells physical products. You need to keep your inventory well-stocked at all times to meet customer demands. But at the same time, if you procure too much inventory, you could see high storage costs and risk product expiry.
Therefore, you need a mechanism to track inventory levels and calculate the optimal reorder points and quantities.
To help you select the right inventory management software for your small business, we’ve created this buyers guide. This guide aims to provide you all the necessary information about this type of software, so you can make an informed purchase decision.
In this guide, we’ll cover:
Inventory management software is a tool that allows businesses to manage inventory operations for both self-owned and third-party warehouses.
The software helps users perform the following:
Track inventory levels.
Manage inventory procurement and movement.
Estimate reorder points and quantities.
Gain insights on key business metrics such as demand growth and warehouse utilization rate.
The first step to finding the right inventory management solution for your business is to understand the different types of solutions. According to our research, there are primarily two types of inventory management software:
Perpetual inventory software: These systems update inventory levels in real time as soon as a transaction is made. This helps businesses reduce instances of overselling and allows for instant reorders when the stock reaches the minimum level.
Periodic inventory software: Instead of updating data in real time, periodic inventory systems update inventory levels each day. These systems are easier to set up but require employees to log transactions into the system at the end of each day. Businesses that use only one sales channel should consider this type of software.
Key questions to ask your vendor before you buy: Is your software perpetual, periodic, or both? What are the advantages of the different types of inventory management solutions you offer?
The next step is to select the right deployment option based on your business needs. Inventory management solutions are available in the following deployment options:
Cloud-based deployment: These solutions are hosted on the vendor’s servers. Users are provided with individual accounts, which they can access by signing in from a web browser or mobile app. Cloud-based systems are usually priced on a per user per month basis.
On-premise deployment: On-premise systems are hosted on a business’s own servers. These systems have one-time per user license fees and upgrade costs. You’ll also need to purchase servers and network equipment.
GetApp.com recommends cloud-based systems for small businesses. These systems don’t require you to invest in physical servers and network hardware, which incur high costs. Cloud-based solutions also allow you to scale up or down based on your business needs or budget.
Key question to ask your vendor before you buy: What is the total cost of ownership (TCO) for each deployment option you offer?
After you’ve reviewed the deployment options, the next step is to understand common inventory management software features. This information will ensure that you select products that offer the features you need for your inventory operations.
Here are the common features of inventory management software:
Product categorization: Categorizes products based on attributes such as item type, utility, and price range. Users can also add custom tags to the products and identify sales trends based on these tags.
Product categorization in inFlow Inventory
Inventory reporting: Creates inventory-related reports such as items sold by category, real-time stock levels, inventory costs, profits, and inventory utilization rate. These reports are helpful at the time of audits because you’ll have the data handy to answer any questions.
Inventory reporting in ShipStation
Purchase order management: Lets you create purchase orders for the new stock and repeat orders. Some solutions also let you generate automated purchase orders as soon as the stock goes below the critical level.
Purchase orders in Unleashed
Order management: Manages orders from multiple sales channels such as business website and store sales. As soon as an order is processed, the software syncs stock levels across all the channels so that updated levels are visible to everyone instantly.
Order management in ShippingEasy
Key question to ask your vendor before you buy: What core feature does your product offer?
While the common features listed above are core to your essential business needs, it’s also good to learn about the advanced features of this software. Some of these features could be important for your business needs, based on your business type, size, and requirements.
Warehouse management: Assists you with warehouse operations such as designating inventory location, searching for an item or batch, and tracking inventory movement.
Barcoding and RFID: Lets you add barcodes and RFID tags to the inventory, so that you can track the real-time location and movement of your physical inventory.
Supplier management (or vendor management): Lets you track the real-time status of the inventory procured from third-party vendors.
Reorder management: Calculates critical stock levels and reorder points based on historical trends. Alerts you as soon as the stock reaches below the reorder point.
Multichannel management: Lets you manage inventory for multiple sales channels such as physical store sales, online sales, and distribution network sales. It updates stock levels in real time as soon as a purchase is made through any of these channels.
Key question to ask your vendor before you buy: What features, apart from the common ones, are relevant for my line of business?
Now that you know the features, the next step is to understand some vital software integrations. These integrations extend the functionality of your inventory management software beyond the core feature set.
Here’s a list of important inventory management software integrations that you should check:
ECommerce integration: Update inventory levels in real time as soon as an online order is placed on your product website. This integration is particularly useful if you sell a high volume of products through multiple eCommerce channels.
Shipping software integration: Lets you assign third-party and in-house transport services to manage dispatch and shipping of inventory items.
Marketplaces integration: Integrates with marketplaces such as Amazon, eBay, and Etsy to help you manage inventory for orders placed through these websites.
Point-of-sale (POS) integration: Helps you manage inventory and billing for in-store orders from a POS terminal, mobile app, or tablet app. This integration also updates stock levels in real time as soon as a purchase is made.
Key questions to ask your vendor before you buy: Does your product integrate with key business solutions such as the eCommerce and shipping management solutions I use? Does your product offer open API that I can use to connect the systems my business uses?
The market for inventory management software is evolving quickly. Artificial intelligence (AI) and the internet of things (IoT) are two technologies that are likely to disrupt this market in fewer than five years.
In this section, we look at these trends in detail and explain the disruption to the inventory management software market. Ensure that the vendors you shortlist are currently using or plan to incorporate these technologies into their products.
Inventory optimization to drive demand for machine learning: Machine learning algorithms can identify fluctuations in demand to provide warehouse managers the optimal reorder points and required order quantity. With the growing adoption of machine learning among small businesses, we expect this technology to become integral to inventory management solutions by 2022.
Advanced sales forecasting to power sales recommendations: A 2018 study found that 63% of customers are interested in personalized product recommendations. But, for retailers to provide the best and most relevant recommendations, advanced sales forecasting functionality is necessary. The functionality analyzes customer purchase trends and recommends products accordingly. This customer need will push inventory management software vendors to add advanced sales forecasting in their solutions, thereby, making it a core market feature by 2022.
Key questions to ask your vendor before you buy: Are you currently using or planning to use machine learning and advanced sales forecasting in your product? Have you set any timelines for implementing these technologies in your product?
We have referenced the following documents while creating this guide:
GetApp Inventory Management Software catalog (Date accessed: 3/25/2019)
Top 5 Tech Trends for Small Business, Capterra (Date accessed: 3/25/2019)
Wireless Networking Startup Looks to Reduce Cost of RFID Tags, OC Startups Now (Date accessed: 3/25/2019)
*Note: The applications selected in this article are examples to show a feature in context, and are not intended as endorsements or recommendations, obtained from sources believed to be reliable at the time of publication.
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