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Various Types of Inventory Management Systems for Your Business

Inventory management requires complex decisions—when are you going to restock which items and how much? Due to this complexity, there are various types and techniques to consider for an inventory management system. In this article, we’ll talk about the various types of inventory management systems for your business to have an organized and accurate tracking solution. 

Types of Inventory Management Systems

What are the various types of inventory management systems?

Inventory management increases information transparency over your items when they are received, picked, packed, shipped, and manufactured, for a start. It also informs you when you have to order more and alerts you when you are over- or under-stocked. For those who are actively tracking their inventory, having the visibility over their company’s inventory reported an increase in their sales of up to 2 to 10% according to Clear Spider.

The main stages of inventory management. (Source: Flykon)

Despite its importance, it is shocking to know that 46% of SMBs either use a manual method in tracking their inventory or they don’t track it all as per the Small Business Report of Wasp Barcode Technologies. This is alarming as the purchasing preferences of the consumer are becoming more complex. For instance, 44% of US shoppers simultaneously use both online and in-store purchase and pickup options as per Marketing Charts.

If you’re not yet implementing an inventory management software program or you’re planning to deploy one in your workflows, one of the first things you have to understand is the various types and techniques of inventory management.

What is the process of inventory management?

The inventory management process involves overseeing the constant movement of items in and out of your organization’s inventory. One of its top priorities is being in control of the transfer of units to ensure the inventory is neither too high nor too low as this can put your company’s operation in jeopardy. Another important aspect you have to control is the inventory-associated costs from the total value of goods to the generated tax accumulated from the inventory value.

This means the process refers to supervising and controlling your stock items to ensure you always have the materials and products you need available. At the same time, you want to keep costs as low as possible. Each step of your inventory management flowchart results to a comprehensive functional unit.

This is the basic flowchart of an inventory management process. (Source: Edrawsoft)

While the overall process varies for each company, the image above shows the standard workflow. With that, we can draw out these three key aspects of any inventory management process:

  1. Time. There are two top lead times to know: first, the time it takes for the supplier to process the order and execute the delivery and, second, the time it takes to establish the inventory when transferring the materials. You have the information to run your operations smoothly if you know when you have to place an order and how many units, including buffer stock, you have to order.
  2. Movement of materials. It is important to track the movement of materials in the operational process as they go through various stages. This will help you determine if there’s a need to adjust the amounts of materials you’re ordering before it dips to an unfavorable level.
  3. Accurate records. Maintaining accuracy of goods is the key for your inventory management. This means you should have an up-to-date, real-time and automated solution for updating the total of completed goods as well as subtracting recently shipped goods. Having the accurate figures lets you quickly convey the right information across your organization.

What are inventory management techniques?

Inventory management systems can be classified by technique. Different businesses and industries may use one or a combination of these inventory techniques; hence, it is important to understand first which of the techniques below your company requires or uses to match them up with the right system.

Just-in-Time (JIT) Inventory Management

This technique refers to ordering inventory on an as-needed basis. It is used by manufacturers by only ordering and receiving inventory only when it is needed for production or customer sales. While it is considered a risky technique, it is used by companies to lessen their inventory on hand and lower their carrying costs. The main goal of this method is to reduce non-essential costs in order to increase ROI.

Zoho Inventory shows you items that are in low stocks, active items, and top-selling items in the dashboard so you will know which goods to prioritize.

ABC Analysis

This is used for dividing on-hand inventory into three categories: A, B, and C to allow prioritization. It is worth noting that this method is not limited to three groups as some companies may need to use more if they have larger inventories and more complicated cycle counting requirements. Its general rule of thumb for classification is:

  1. Group A: Inventory that accounts for 20% of the units in the warehouse and 80% of the dollar used.
  2. Group B: Inventory that accounts for 30% of the items and 15% of the dollar usage.
  3. Group C: Inventory that accounts for 50% of the items and 5% of the dollar usage.

This is not always the case for each company. Some may use other criteria like lead times and transaction costs. Here’s another example:

  1. Group A: Inventory that accounts for 70% of items with high value and 10% of items with a small number in total.
  2. Group B: Inventory that accounts for 20% of items with moderate value and 20% of items with a moderate number in total.
  3. Group C: Inventory that accounts for 10% of items with a small value and 70% of items with a large number in total.

Dropshipping

This technique eliminates the need for inventory as you directly forward the customer orders and shipment details to the manufacturer or wholesaler. They will be the one to directly process, ship and deliver the goods to your customers. In today’s e-commerce world, this is popular among online retail platforms such as Amazon, eBay, and AliExpress, among others. With the entire process happening online, it doesn’t need a warehouse for inventory.

Cross-docking

Quite a similar technique to dropshipping, this method doesn’t rule out storing of inventory. Goods are transported from one transport vehicle immediately to another. This means there’s minimal or no storage occurred during the process. It may require staging areas for sorting and storing inbound items until it’s ready for outbound shipment. While this technique has low carrying costs for inventory, you will need an extensive vehicle fleet to carry out the transport timely and efficiently. International inventory management systems are essential, especially with transportation serving an important aspect in the supply chain, for locating, tracking, and predicting inventory movement as it’s transported.

MarketMan reveals purchase vs. target, purchasing and food cost which can help you determine if bulk orders are efficient for your operations, particularly if you’re running a food business.

Bulk shipment

While the JIT method orders stock only when they’re going to be used, bulk shipment is a technique for ordering goods in bulk. The downside of this method is you will need to shell out for money upfront and you will have to invest in warehousing for your inventory. However, this is effective for businesses with high customer demand as they can save from purchasing and shipping goods at once. This also lessens the need for frequently replenishing stocks and reordering.

By Frequency of Use

Inventory management can also be categorized by how often you need to run inventory. This classification is important when choosing between a perpetual on-premise license, annual cloud subscription or month-to-month SaaS plan.

Perpetual inventory system

Inventory records and accounts are continually updated when items are added or subtracted as they are received, sold from stock, moved to and from a different location or scrapped. Organizations prefer this type of inventory management system if they need an up-to-date information and more minimal physical inventory counts.

Periodic inventory system

Inventory data is updated for a specific period of time. Organizations will know the beginning and end of their inventory levels during the period by using physical inventory counts. Once it is completed, the balance is moved from the purchase accounts to the inventory account. It then adjusts to match the ending inventory costs. This method is mostly used by smaller businesses maintaining minimal inventory amounts.

By Technology

Another way to look at inventory systems is by the technology they use, even as a number of systems incorporate both of the technologies below. This classification is useful when deciding which inventory management solution to procure based on the hardware you are using or prefer.

Barcode system

An accurate, fast and efficient system for updating inventory levels by scanning items with a barcode scanner or mobile device.

Radio Frequency Identification (RFID system)

Inventory movements are managed by active and passive technology—using fixed tag readers and RFID tags in the warehouse for real-time inventory tracking in the latter and using handheld readers for monitoring inventory movement in the former.

After identifying which works best for your business, you can begin by narrowing down the features and types of inventory management software solutions you need.

By Industry

Lastly, we can categorize inventory systems by niche. It is recommended that you get a vertical inventory management system to cater to your business’ specific needs.

Manufacturing inventory management

This is the system you need if the focal point of your inventory is on tying bills of materials and work orders. In order to run your manufacturing business, you need to track the work you’re doing and the materials you need to deliver or produce that work which requires an efficient inventory management system. These are the features you need to do so:

  1. Materials tracking Inventory levels (parts and finish products)
  2. Automated reordering
  3. ERP/maintenance software integration

Warehouse inventory management

Warehouses focus on locating where an item is. This means while having the right inventory count of onhand items are just as important, it is crucial to ensure you can find an item quickly in a warehouse setting. Software-based warehouse inventory management systems are often used as they optimize and automate the conceptualization of the warehouse which simplifies the process of picking stocks. The features you need are:

  1. Multi-location support
  2. Advanced barcode system (with QR, among other standards)
  3. Shelf and bin tracking system
  4. Order picking support

Cin7 gives you deep insights into your sales over a period of time and which items are selling most which is crucial for retail inventory.

Retail inventory management

In a retail business, it’s important to have enough stocks available to run your business smoothly and profitably. Reordering stocks before they run out is critical to capitalize on sales opportunities while ensuring not to order too many items that risk not being sold. Hence, the right inventory management system is essential to keep the inventory balanced according to your business goals. To ensure you have adequate inventory levels, these features are your must-haves:

  1. Order picking support
  2. Automated reordering
  3. Barcoding support
  4. Inventory forecasting

What are Examples of Inventory Management Systems?

1. Zoho Inventory

An inventory management built for growing businesses to keep track of each of their units and increase their sales. Zoho Inventory has features for stock management, order fulfillment, and inventory control. This cloud-based inventory management system helps you build sales strategies, keep customers satisfied, and manage re-order point. It tracks every item or batch of your inventory and its movement through its batch tracking feature and serial number. It also has a warehouse management solution for monitoring stock levels, managing inter-warehouse transfers, and generating reports.

Additionally, the software has integrations with multiple shipping partners, accounting, and CRM systems for an end-to-end inventory solution. All these are packed in Zoho Inventory’s scalable pricing plans that are suited from startups and small businesses to larger enterprises. To get to know the platform better and choose the right plan that suits your needs, you can easily sign up for Zoho Inventory here.

2. Cin7

An inventory management system for merchants selling and distributing products. Cin7 gives you more power in your stock management and control by having a complete and real-time view of where the stock is, what has been committed, and what is due to arrive. This also works if you have multiple branches as it supports warehouse inventory management to oversee stock levels with a 360-degree, real-time visibility.

One of its top features is instead of using a weighted average, the tool bases stock value on its exact landed cost. This means by having an accurate cost of sold goods, you’ll get a more accurate gross profit reporting. Its other features include smart buying and reordering, rich product management, quoting, batch importing and updating, and multi-currency support, among others.

It is essential to check out the platform’s features so you can determine if it suits your processes. To try the software at zero cost, you can sign up for Cin7 free demo here.

3. MarketMan

It offers a restaurant inventory management software to streamline ordering, reduce wastes, and drive profitability. The cloud-based MarketMan streamlines procurement, accounting, and delivery. It tracks the cost of goods sold, checks your entire purchasing history, and empowers you to oversee the entirety of your inventory. In addition to restaurants and chains, the tool is also useful in handling your suppliers (managing your catalog and ordering of new products) and partners (providing actionable insights and helping clients grow their business).

The platform functions with simplicity from easy set up to streamlined receiving of inventory and invoices and generating reports for menu items, sold ingredients, and managing wastes. As an industry-specific solution, it offers features that suit your business’ needs such as food costing, control inventory, and optimization of ordering process. You can get to know the product better and learn more if it matches your business requirements. All you have to do is sign up for MarketMan free demo here.

4. Vend

A multi-outlet retail and inventory management system to enhance efficiency, oversee stocks and automate hard tasks. As a multi-outlet solution, Vend simplifies handling bulk product imports, managing SKUs (from one up to thousands), and creating multiple product sizes, colors, and variations in the system. It also offers barcodes and labels, product organization, centralized product catalog and product duplication in a single click.

You can manage your pricing across all your channels and customer groups, run exclusive discounts, automate promotions, and handle taxes for outlets in various locations. Its simple stock order management helps you ensure you have your best-selling products in stock. Taking full control of your inventory through inventory counts, stock transfers for multiple outlets, and robust inventory control can maximize your profits.

5. Brightpearl

If you are looking for a retail management system,  Brightpearl is a good platform to consider. This is an omnichannel retail software that offers an all-in-one solution for retailers and wholesalers with its cloud-based automated inventory management module. Your sales accounts are automatically updated with accurate counts as you purchase, sell and transfer inventory.

It has an integrated warehouse management system with barcode scanning and flexible cycle count module for higher efficiency in designing counts. Its multi-location inventory management provides a global solution for businesses managing inventories across multiple stores, warehouses, suppliers, drop-ship partners and 3PLs. Brightpearl’s pricing is designed to match the stage of your business growth—brand leader, high growth, and enterprise.

6. Stock&Buy

Built for retail and online businesses, Stock&Buy is an inventory and order management solution designed to unify all aspects of one’s multichannel operations. The software gives you the capability to take full control of your inventory and fully satisfy your customers. With its robust inventory management tool, businesses can keep track of all stock items and all related information. Automated alerts can also be set at specific stock levels so you can be notified when stock levels are in the red.

Stock&Buy also features reporting and forecasting functionalities to provide you with a clear picture of product movements. Having this information can prove crucial on knowing which product sells well and the best time to restock on certain items.

Key Takeaway

Tracking your inventory enables you to predict how much you can potentially sell, find products faster for your customers, and replenish your shelves before you run out of stocks. Since this process is not an easy task, there are plenty of types and techniques of inventory management systems to consider based on your specific business needs. Identifying them first can help you choose the right software to monitor, predict, and reorder items when you need them.

There are plenty of examples of inventory management systems for different businesses. If you are ready to explore options, you may read this comprehensive list of top 15 inventory management solutions prepared by our team of experts. The products are curated among the top inventory management solutions in the category based on its feature set and how they deliver.

Daniel Epstein

By Daniel Epstein

Daniel Epstein is a senior financial research analyst at FinancesOnline and the architect behind our Fintech and ERP content division. His main areas of expertise are blockchain technologies, cryptocurrencies, and the use of biometrics in fintech solutions. His work has been frequently quoted by such publications as Forbes, USA Today, Entrepreneur, and LA Times. With more than 1,800 solutions scrutinized in the last 5 years spent on our team he always prioritized offering readers an unbiased perspective on modern financial technologies.

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