What Are Inventory Systems?

by Mary Jane; Updated September 26, 2017
An inventory system keeps track of products you are storing.

Inventory systems are tracking systems that inform you of the amount of raw materials, supplies or final products you have readily available. The inventory system is updated each time you sell an item or use raw materials to create a product, so you know what you have available for the following day or week. This type of system also allows you to order products in advance, so you have everything you need at all times.

Purpose of Inventory

The purpose of an inventory system is to keep track of what you have in your small store, large office or product development factory. If you know what you have available for sale or to build products, you can easily satisfy the needs of your customers when they contact you to buy your products. The inventory system informs you when you need to purchase more products or supplies.

Types of Inventory Systems

There are two main types of inventory systems. Smaller privately owned stores may use a manual inventory system, where the cashier manually keeps track of all items sold each day. At the end of the day, sold items are subtracted from the total inventory count to get an updated number available for sale. A technological inventory system tracks the purchases and gives you an updated number of inventory items left for sale. Both systems require that you manually count all of the products or items in the inventory.

Asset or Liability

Items that the company has bought as part of the inventory are considered business assets. As long as the company can sell or use the items, the business is not losing money. However, items that have passed their expiration dates or that are not selling due to a lack of demand or lack of popularity can become liabilities for the business. An inventory system should only store the amount of items that can easily be sold to avoid creating a liability for the business.

Inventory Management

Any inventory system should have a manager to keep track of all the items in the inventory system. The manager is responsible for ordering new items or products when supplies are getting low and manually counting the items to catch any employees who may be stealing or find any inventory items that may be broken. The manager should also be responsible for locating items that have expiration dates in the inventory and that are subject to mold or damage.

About the Author

Based in Toronto, Mary Jane has been writing for online magazines and databases since 2002. Her articles have appeared on the Simon & Schuster website and she received an editor's choice award in 2009. She holds a Master of Arts in psychology of language use from the University of Copenhagen in Denmark.

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