Importance of Inventory Management Systems

by Osmond Vitez; Updated September 26, 2017

Inventory management is an important part of a business because inventories are usually the largest expense incurred from business operations. Most companies will use an inventory management system that will track and maintain the inventory required to meet customer demand. Most systems used by companies are linked to the management or accounting information system, increasing the effectiveness of their operations.

Inventory Orders

Inventory management systems help businesses order inventory by accurately recording consumer sales. Electronic inventory systems can track sales in a real-time format, ordering inventory automatically when current stock hits a predetermined minimum level. Electronic ordering, known as Electronic Data Interchange (EDI), allows companies to maintain the proper amount of stock by not increasing costs through over-ordering of inventory. EDI also ensures that orders are placed immediately, ensuring short amounts of lead time to receive new inventory.

Stock Maintenance

Computerized inventory management systems allow companies to properly order and maintain several different types of goods. Different styles, colors or sizes can easily be managed to ensure that consumer demand is met through offering a variety of goods. Most companies use inventory management to keep stock items separate from similar goods; this allows management to determine which items are selling well and which items need to be reduced from inventory based on poor sales.

Price Levels

Properly managing goods is largely based on the cost of the goods incurred by the business. Using inventory management systems will help companies find the lowest price on inventory items and ensure that the best deals are reached when purchasing these items. Purchasing goods by volume also helps companies to lower their cost on inventory, ensuring that low prices are assured to consumers. Inventory management systems track costs from purchased goods and can prepare a report indicating which vendors have the lowest cost on goods.

Count Methods

All inventories need to be counted and reconciled to the information provided by inventory management systems. Computerized systems will generate current inventory reports for management to use when conducting physical counts of on-hand inventory items. These systems will also prepare reports showing the current sales or transfers of inventory to allow management to track sold or moved goods. After conducting a physical count, inventories can be adjusted in the inventory system to ensure accurate reporting.

Trend Analysis

A great function of inventory management systems is the trending analyses that are generated for management review. These trends are used to see which months have high inventory levels or the effectiveness of inventory purchases. Trends also ensure that companies can order inventory if the inventory management system does not accurately reflect upcoming busy seasons, such as holidays or back-to-school shopping.