What Are Inventory Systems?

by Anam Ahmed - Updated November 14, 2018
An inventory system keeps track of products you are storing.

When people think of inventory systems, it’s common to relate it to the retail industry. While retail stores require effective inventory management to operate successfully, inventory systems are also heavily used in many other types of businesses, including manufacturing, utilities, health care, government, education and more.

Regardless of where a system is used, the inventory management definition is the same: to ensure that the right amount of inventory of the right quality is available at the right place at the right time. If your small business is looking to use an inventory system to manage your organization’s inventory-related tasks, such as shipping, purchasing, receiving, storage, turnover, tracking and recording, be sure to conduct research into the different types of inventory systems available to find the one that best suits your business.

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  • An inventory system is a technology solution used to integrate all information regarding stock levels and stock movement for an organization.

Types of Inventory Systems

While there are several different kinds of inventory systems available, they can be categorized into two main types: perpetual inventory systems and periodic inventory systems. As suggested by their names, the main difference between the two types of inventory systems is how often inventory is tracked.

Perpetual inventory systems update records continually. They frequently track when materials are received, sold or moved from one place to another. The key benefit of using a perpetual inventory system is that they provide up-to-date records that always reflect stock levels. However, these kinds of systems require specialized equipment and software, which come with a high cost of implementation. If your small business has multiple locations or warehouses, that is something to keep in mind because the number of locations also drives up the cost.

Periodic inventory systems don’t track materials on a continuous basis like perpetual systems. Instead, this kind of system provides the beginning and ending inventory levels during a certain specified period of time. Periodic inventory systems rely on a physical count of the materials at the start and end of the time period. As a result, inaccuracies can be introduced by staff since the count is done manually. In addition, regular business activities generally need to be paused during the count, which can result in a loss of revenue for the company. Businesses also need to spend additional amounts in labor costs for the inventory count, which is why this kind of system is better suited for smaller businesses with limited inventory.

Benefits of Using Inventory Management Systems

Above all, inventory management systems provide a single source of truth for the business, ensuring they are aware of item locations, vendor and supplier information, product specifications and total count of materials. In addition, one of the main benefits of using inventory systems is efficient stock operations. Businesses are able to save on the time and effort required to manage their stock effectively, with up-to-date information at their fingertips.

Other benefits include centralized storage information, better reporting and forecasting, reduction in dead stock and optimized labor costs. In addition, inventory systems enable businesses to have better, more transparent relationships with suppliers, vendors and partners.

Inventory Management Software Features

There are a number of leading inventory systems on the market, each bringing unique and helpful features to aid businesses in stock management. Zoho Inventory is a system that works for both small and large businesses, with an out-of-the box feature that automatically replenishes inventory that is out of stock. Great for small- and medium-sized businesses, Logiwa is an inventory system for those that operate in the retail and e-commerce space. Features include unlimited integrations and APIs that make it easier for businesses to complete B2C order fulfillment.

TradeGecko is a cloud-based solution that is best suited for multichannel distributors that need to manage products, orders, analytics and insights all in one place. Similarly, Brightpearl is another inventory system that is best suited for businesses that operate in multiple channels and need to see an overall picture of their inventory status.

About the Author

Anam Ahmed is a Toronto-based writer and editor with over a decade of experience helping small businesses and entrepreneurs reach new heights. She has experience ghostwriting and editing business books, especially those in the "For Dummies" series, in addition to writing and editing web content for the brand. Anam works as a marketing strategist and copywriter, collaborating with everyone from Fortune 500 companies to start-ups, lifestyle bloggers to professional athletes. As a small business owner herself, she is well-versed in what it takes to run and market a small business. Anam earned an M.A. from the University of Toronto and a B.A.H. from Queen's University. Learn more at www.anamahmed.ca.

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