When a business carries more inventory than it can sell in the short term, it loses money on warehousing and other costs. When a business carries too little inventory to meet demand, it can lose customers who don't want to wait for the product to come in. The purpose of a sales and inventory system is to make sure the company always has the right amount of inventory.

Knowing What You Have

Many small businesses track sales as they happen but only compare the sales figures to the inventory on a yearly basis, a method known as periodic inventory. The problem with the periodic inventory approach is that any errors are not caught until the end of the year, so the company may have more or less of any item on hand than what the system shows. If a salesperson tells a customer that an item is in stock but then it turns out not to be, the customer is likely to be irritated and may go elsewhere. If a customer is told that an item is out of stock when it actually isn't, the company might lose a sale and a customer for no reason. Sales and inventory systems track both sales and inventory figures continuously so that the number of each item on hand is more likely to be accurate.

Reducing Inventory

A sales and inventory software package can help a business avoid excess inventory by accurately predicting customer demand. Companies often carry a certain amount of safety stock or excess inventory to guard against delivery delays or unexpected demand for a particular item. Carrying more safety stock than necessary can be expensive, because the extra inventory takes up warehouse space and can result in a higher tax bill. One objective of a sales and inventory system is to reduce the total amount of inventory the company needs to keep on hand at any one time.

Carrying the Right Amount

If a business tries to avoid carrying excess inventory without having a reliable way to predict customer demand, it risks disappointing customers by not having what they need when they need it. Sales and inventory software systems track what customers buy and when they buy it to predict what customers are most likely to do at different times of the year. The primary goal of any sales and inventory system is to acquire just enough of each item just before it is needed.

Saving Money and Increasing Profits

A sales and inventory system can cost anywhere from a couple thousand to several thousand dollars depending on the number of users. This might seem expensive, but a relatively small reduction in inventory costs can result in a large increase in net income, because the cost of goods sold decreases with higher turnover. Sales and inventory systems can improve accuracy, reduce inventory and predict demand, but the ultimate objective is to save the company money and increase its profits.