Inventory Management System Buying Guide

Many new or small retailers start with manual, low-tech solutions. In short, they keep track of inventory with a pen and paper. Each sale and delivery get recorded in a ledger as it happens, to keep records up to date.

The business owner then needs only to check the written record as and when required. For instance, they may wish to work out if and when to raise a purchase order with suppliers. The main strengths of this type of system are that it’s simple and inexpensive. Human error, on the other hand, is a significant weakness, as is the system’s time-consuming nature.

From startups to larger brands, businesses of all sizes rely on spreadsheets as makeshift inventory management systems. While experienced inventory managers can create spreadsheets with advanced formulas to track inventory, update order status, manage financials, and generate shipping labels, relying solely on spreadsheets becomes time-consuming and error-prone as your business expands.

Complexity arises when managing multiple sales channels, inventory locations, or international expansion. Moreover, training new members on complex master spreadsheets poses challenges.

To achieve long-term scalability and reliability, businesses seeking growth should strongly consider investing in a dedicated inventory management system.

Standalone inventory systems often offer long lists of features for a low cost. Tempting right?

While it may seem tempting, retailers often discover that these systems lack the quality and functionality needed for sustained growth.

Inadequate reporting capabilities limit data-driven decision-making, forcing some retailers to resort to using Excel for insights. Furthermore, standalone systems struggle to automate complex orders like multi-location management and dropshipping, undermining time-saving expectations.

Another key downside of most standalone systems is self-guided implementation. Having decided to invest in an inventory management system, you want to make sure that you’re getting value for money and using the system to its full potential. Sadly with cryptic online documentation and limited support, retailers often find that their operations are no more streamlined than if they were using spreadsheets or worse end up with disconnected systems impacting on their customers.

ERPs (Enterprise Resource Planning) have the advantage over standalone systems in being complete, integrated systems that can typically handle the majority of processes across marketing, human resources, operations, finance and Engineering.

However this one size fits all approach may mean that an ERP isn’t the best choice for your business.

1. Slow integrations – As a retailer, you want to give your customers the best possible shopping experience and sell on channels that they’re using to shop. However as ERP systems are so complex, building a new integration is an extremely tricky & time-consuming process. This can leave retailers waiting months or even years waiting to connect their ERP to a new up and coming sales channel or tool.
2. Costly customization – Because ERPs are designed to work with such a wide range of businesses you’ll need to customize the features to meet the complex inventory management requirements of your specific business. Unfortunately these customizations are usually not included in the initial quote meaning you can end up paying up to four times more than your expected price.
3. Implementation – Without a good implementation, even the best system will leave you with data gaps, glitches and errors leading to missed sales. If you’re a retail/wholesale business then it stands to reason that you expect people that are familiar with retail to be handling your implementation. Sadly that is rarely the case with ERP implementations combined with the above reasons leads to long time frames (420 days on average) along with a higher failure rate (75%).

The best system in the world can’t do much for you if it’s complicated and difficult to implement.

In other words, you’ve got to make sure that implementation will be three things: Simple, quick, and seamless. Let’s take a closer look at all three of these essential qualities.

First, there’s simplicity. Ideally, a new system should have a simple enough setup process that anyone with basic tech-based skills can complete it.

As for speed, it’s important that your system can be implemented within a reasonable time frame. In some instances, that might mean a few days at most; in others, it means taking no more than a few hours.

Perhaps most importantly, implementation needs to be seamless. If your prospective inventory management system doesn’t work in harmony with any other software (or hardware!) that you’re already using, it’s only going to create more problems and complications further down the line.

Picture this: You’ve run into a problem with your chosen solution, and you need to get in touch with the provider’s customer support team. When you try to call them, you’re put into a long queue and given no idea of how much time you’ll need to spend waiting. When you send an email, you get no response. There’s no live chat option.

If that idea frustrates you, you’re not alone. And to make matters worse, companies that make customers feel this way have a bad habit of ignoring their complaints online.

You don’t want to become part of that statistic. At minimum, you’ll want to have a few different ways to get in touch with the customer support team in question.

It’s always a good idea to ensure that when you do contact customer support, the agents are well-trained, knowledgeable, and friendly, too.

The right inventory tracking solution for your firm depends on your industry, target audience, and many more factors besides.

There are some key features of inventory management system software, though, to look out for. The following is a brief rundown of some of the most useful:

1. Automation

There’s a good reason why the market for automation (and the AI associated with it) is rising so rapidly —it makes your work life both easier and more efficient.

When you automate inventory management tasks, workflows, and processes, you’re taking repetitive or time-consuming work out of the hands of employees. This frees up employees’ schedules, ensuring they can be more productive in less time.

2. Barcode scanning

Knowing your stock levels and where items are is fundamental to inventory management. The top software solutions integrate seamlessly with barcode scanners in your warehouse. That way, the real situation on the ground is also what your inventory management system with barcode scanners reflects.

3. Real-time inventory updating

Changes to stock levels and movement of inventory gets updated in real-time. As soon as an order gets placed or delivery arrives, your system tracks the changes. That’s even when products get sold in bundles or if units form part of a larger package.

4. Advanced reporting

Inventory management can also help companies learn more about their wider business. Intelligent reporting of sales data, reorder levels and more provides invaluable insight. Such reports help companies to optimize order times and track their most popular products.

5. Support for multichannel sales

Few modern businesses are one-dimensional. Most e-commerce companies, for instance, sell via a range of varied channels. They may include third party sites such as Amazon or eBay, for example. Your inventory management system must integrate with such channels to ensure accuracy.

6. Inventory demand planning & forecasting

Superior inventory management is about the future as well as the present. The best inventory management systems account for this with built-in demand planning and forecasting features. Data on seasonality, consumer trends, and more gets leveraged to develop accurate forecasts of future customer demand. That ensures you can invest in the correct inventory at the right time.

7. Accurate accounting

The value of your inventory and how it changes is critical to business operations. An inventory management system must include integrated accounting. That’s how you get accurate, real-time tracking of your finances.

8. Raw material & assembly process tracking

Inventory management isn’t only for pure B2C retailers or online stores. It’s also critical to manufacturers who take their products to market. Inventory tracking solutions suited to these firms must have additional elements. They include the ability to track raw materials in the supply chain as well as handling assembly processes.

9. Cross-organisational integration

As crucial as inventory management is, it’s not a commercial island. It’s merely one part of your broader business operations. An ideal inventory management system integrates seamlessly with all other departments. That way, your whole company will forever pull in the same direction.

10. POS

For retailers with physical stores as well as e-commerce channels, integrated POS software is another must. Such software syncs all purchase and stock details from in-store transactions with the retailer’s broader automated inventory system. That way, inventory gets instantly updated across both online and offline channels. Rather than having a disparate store inventory management system existing in a silo.

11. Bundle

When you’re looking to sell two or more items together under a single SKU, you’re creating a bundle. Your inventory management system needs to be able to keep up with these groupings, meaning that it should recognize them as bundles rather than individual items.

12. Multi-warehouse inventory control

If you have more than one warehouse or storage site, inventory management can be trickier. The best inventory management system will traverse more than one site and give insights into stock location as well as volume. It will also make transferring stock from one place to another intuitive. Not to mention recording all movements in real-time.

Your inventory items aren’t still. From replenishing new stock and fulfilling orders to transferring inventory across locations and processing returns, your inventory levels are constantly changing. It’s challenging to manually track and update inventory status, especially when selling on multiple channels or managing a large catalog of SKUs. This is where an automated inventory management system comes in handy.

The cycle count procedure involves dividing your inventory into smaller, more focused lists of products that need to be counted. You could divide your products up by product category, product vendor or even the warehouse location. This can usually be done easily and efficiently when using an inventory management system.

But there are two certain counts that are the best inventory control method: high risk and high value.

High risk counts are a list of products that have historically had the largest inventory discrepancies, are prone to theft or spoilage, or have had the most inventory corrections performed against them due to breakages or returns. This type of count ensures you’re analyzing the reasons for why there’s been so many write-offs, and thus, you’ll learn how to mitigate the causes.

High value counts, on the other hand, are a list of products that have the highest cost or potential sales value. As these items are your most cash-intensive, it’s important to understand and accurately track them at all times.

If you’ve ever had to manually complete cycle counts, you’ll know that it’s both time-consuming and easy to mess up.

That’s why retailers who use inventory management software pass that sort of task off to automated programs that perform it for them.

This eliminates the risk of human error. At the same time, it ensures that all counting is done exactly when it needs to be, which helps with getting the right information to the right people at the right time.

For inventory valuation, there are three common calculations:

• LIFO (last-in, last-out)
• FIFO (first-in, first-out)
• AVCO (Average Cost or Weighted Cost)

Choosing the right inventory valuation method is a crucial step as it can have a significant impact on your reported profitability.

Most inventory management systems use FIFO as this is the method that is most realistic against what’s happening in your warehouse, while ensuring your balance sheet also reflects the actual costs you’ve paid to acquire inventory.

Your retail company is bound to need to set transfer orders, and thanks to your inventory management software, you won’t have to do it manually.

This comes with a few key benefits, not least of which being the fact that your human employees don’t need to waste time setting things up by hand. Also, it’s hugely beneficial to know that your automated system can detect, and respond to, any changes that need to be made to the transfer orders in real time.

With 89% of American shoppers claiming they would shop again from an online store if treated to a positive returns process, it’s important to establish a good way of managing this type of inventory within your inventory management strategies.

There are different ways to handle returned inventory. To start with, we’ll focus on two types: authorized returns and automatic/blind returns.

Authorized returns

Require customers to call or email in their return requests

Blind returns

A return slip and free shipping label contained with the original package, or allowing customers to print a returns slip directly from your website is required for this process.

If you require your customers to call or email in their return requests, we refer to these as ‘authorized returns’. Dealing with returns in this way offers your team the opportunity to speak with the customer to find out more about why they’re returning the product and if a different product can be offered in exchange for it. It also ensures you have a view of inventory you’re expecting back into the warehouse, but it does require more man power and time.

On the other hand, automatic or blind returns can make the returns process easier for both yourself and your customers. A return slip and free shipping label contained within the original package, or allowing customers to print a returns slip direct from your website is required for this process. Although you won’t have a view of incoming inventory in advance of it arriving at your warehouse, you will spend less time in the long-run, especially if you have reliable RFID or mobile devices on hand, enabling you to scan goods into the warehouse.

Plenty goes into effective inventory management, therefore. You may need to dropship, partially fulfill orders, process back orders, run your operations from one warehouse or several, or maybe even combine all those processes and more.

Utilizing technology in the shape of an inventory management system is often the only way to stay on top of everything. Precisely what, though, is such a system? What types are there, and what can the correct alternative bring to your business?

Many businesses use ABC analysis to classify their inventory and prioritize their reources on inventory that need it most.

According to the Pareto Principle, 80% of overall inventory consumption comes from just 20% of your total items. ABC analysis comes in useful to help you identify how to make your inventory control as efficient as possible.

Using this method as a starting point, you can split your inventory into three categories based on value, cost and consumption.

Although ABC analysis is one of the most commonly used inventory management methods, a smart inventory management system with automated, sophisticated metrics can better assist you in prioritizing your resources on inventory. For instance, with Brightpearl, you’ll have access to critical KPIs such as forecasted lost revenue due to delayed replenishment or costs associated with your slow-moving products if you don’t sell them immediately.

Just-in-Time ordering (JIT) is a great inventory management technique to reduce inventory holding costs and increase inventory turnover. However, you’ll need an efficient inventory forecasting and planning process in place to avoid stockout issues.

Opting for an inventory management system with integrated, advanced inventory forecasting and planning functionality is the way to go. Brightpearl, for example, offers smart inventory planning that provides intelligent inventory purchasing recommendations based on up-to-date customer demand forecasts. This allows you to buy the right inventory at the right time, preventing stockout or overstock issues.

Always-up-to-date demand forecasting is fundamental to ensuring an efficient inventory purchasing, especially when demand fluctuates due to influencer campaigns, seasonality, and supply chain issues.

Imagine for a moment that dropshipping is the “anti” inventory management technique. That might sound a little strange, but just like with JIT ordering, it’s a way of offsetting the risk and costs of inventory management to another business.

Dropshipping involves forwarding sales orders and shipments as a request to your vendor or manufacturer. They will then be responsible for sending the items to your customers on your behalf, usually with your branding, so the customer is unaware you’ve even used a dropshipping company.

By adopting this approach, you’ll typically have lower overheads as you’re not physically storing products, maintaining a dispatch process and likely won’t have to pay for inventory upfront. There’s much less asset management involved – handling inventory levels is not your responsibility! This is the “anti” part we referred to earlier.

Selling on consignment is when you send products to other retailers for them to store and sell on your behalf; with each business taking an agreed share of the profits.

Any business can sell as a consignor or consignee but you’ll need to ensure you’re able to accurately track inventory – both financially and physically.

Consider these important points when selling goods on consignment:

• How will inventory levels be communicated? By hand? Email? EDI?
• Are you using multi-location inventory management to make this process easier?
• Who pays for freight and shipping of consignment items?
• What happens if items are damaged or defective?
• Who is responsible for the insurance of the products?
• Do customers return items to the retailer or directly to you?
• Are you using an accounts package or team, which is familiar with consignment inventory and its financial implications?
• How will you record and chase outstanding consignee debt?

There are multiple retail KPIs you can analyze to help improve the workflows you have around inventory planning. They’re also helpful for preventing discrepancies in the warehouse. Here’s what we recommend you keep an eye on:

• Gross Margin influences your pricing and discounting strategies
• Inventory Turnover Rate affects how much working capital you’ll have for operating expenses

Sell-Thru Rate enables you to see which products and product lines have spikes or dips in sales – and why – to help power your demand planning and restocking processes.

Units Per Transaction helps with both your demand planning and upselling strategies.

Rate of Return enables you to deep dive into which products have a higher rate of return than others, and why, ensuring you know how to improve your pick, pack, ship process or product packaging.

Perfect Order Rate shows you whether your pick, pack, ship process needs improving.

Lead Time is a key metric when it comes to demand planning, showing you how long it takes for your suppliers to deliver items to you once they’ve been ordered.

We’ve written extensively on the topic of retail KPIs and inventory planning – check out some of our top resources below:

• Retailers: Why Knowing Your 6 Operational KPIs at Anytime, All the Time is Critical
• Retail KPI: Gross Profit Margin
• 8 Financial Health KPIs Retailers Should Not Ignore
• Inventory Forecasting Best Practices
• Anticipate Future Demand with Quantitative Inventory Optimization
• Retail KPIs: Processing Cost Per Order
• Retail KPIs: Perfect Order Rate

One of the key inventory management system benefits is the impact such a system can have on your bottom line. When you don’t keep an accurate inventory report, it’s easy to run out of products and miss out on sales. Instead of relying on your memory or a visit to the warehouse to decide what to reorder, use an up-to-date inventory report to:

• Quickly see what products you’re running low on
• Compare your inventory level with what’s been selling well
• Place reorders with wholesalers before you run out

Depending on what inventory software you use, you also might be able to set minimum inventory levels for each item. Then you can view the list of products that are below that level and place and send new purchase orders quickly.

To be successful in retail, you need to invest your cash wisely by buying the right quantity of each product – enough to keep sales going and prevent stock-outs, but not so many that some items just sit on the shelf and increase carrying costs.

Keeping accurate inventory reports helps. You can quickly identify slow-moving products so you can mark them down and clear them out to free up cash to invest in new products, marketing and more.

Accurate product reports produce accurate inventory cost values, which are essential to the precision of several financial reports if you use cost of sale accounting.

This method associates a cost, which comes directly from the product’s asset value with each sale.

That makes correct cost values critical to your balance sheet, as well as your cost of sales and income statement, upon which many management decisions hinge.

If you’re keeping an eagle eye on your inventory levels, you’ll spot problems right away – instead of months later during annual cycle counts when the discrepancies may have already cost you a lot of money.

Maybe a step in your warehouse process is being missed? Perhaps there’s an error in your reorder point formula? Or one of your salespeople is making mistakes on sales orders? You need to know now!

The best way? By constantly reconciling sales and purchases through a tightly maintained inventory management system.

Exact inventory reports also help you provide better customer service. When customers say they haven’t received one of the products they ordered within a given time, it’s not enough to check in with your supply chain management. If the product’s been lost, you need to be able to check your report and confirm that you have one extra in the warehouse. Likewise, if you regularly keep on top of inventory levels, you can identify incorrect shipments sooner.

And if your inventory system is up-to-date with purchase orders, you’ll be able to sell customers the products they want because you’ll know new inventory is on the way. This kind of communication encourages your customers to trust you, which in these competitive times, is a valuable asset.

Reordering will be much more efficient if your reports tell you what products are available. When you’re working with correct inventory numbers and a threshold limit is reached, you can use automation to trigger a new purchase order to replenish your goods and keep sales coming in.

This means you can work methodically through your product set, making informed buying decisions instead of physically checking individual SKUs on your warehouse shelves to write a purchase order.

If your reports come from advanced inventory management software, you also can see if you already have products on order with a supplier and if your supplier has long lead times or irregular deliveries on finished goods. This information is a must if you want to keep reordering under control.

From theft to loss to damage, products can be lost in many ways. But if you manage accurate inventory levels, you can identify issues quickly.

And while no one wants to think that their staff may steal from them, it pays to be vigilant. Showing your staff that you keep an accurate inventory is a great theft deterrent.

Running an efficient and profitable business is all about sharing and using accurate information. One way to do this is through a software system that integrates with everything from your point of sale devices to barcode scanners.

If your staff knows that the inventory levels in your system are always up-to-date, they’ll trust the software and use it more for all of their tasks. And you’ll end up with cleaner data as a result for better reporting, collaboration and efficiency across the team.

When your inventory report tells you what you have in stock, the pick pack ship process runs more efficiently.

Your warehouse staff don’t need to run around looking for a missing inventory item because you know exactly when it sold and shipped.

This enables you to process more orders in the same amount of time with the same staff – or balance your resources differently. Accurate inventory levels can keep your business lean! Find out how to optimize your warehouse with Brightpearl here.

When all your inventory levels are up-to-date all the time, periodic cycle counts are faster and more efficient because you’re just confirming data that’s already in your system instead of doing a lot of time-consuming data entry.

In the event of high order volumes, such as those that arise during peak trading seasons, flash sale events, or when celebrities step out in your products, your inventory numbers will be able to keep up in order to keep your sales flowing profitably across all channels – but only if the numbers are accurate to begin with. Demand forecasting is key to reducing the total cost of managing a business.

For growing retailers, especially those adding locations or channels, inventory management can seem overwhelming. We hope these eleven benefits of inventory management illustrate that the efficiencies you’ll gain make it well worth your effort. A little focus on this foundational piece of your business can bring big rewards.

You should by now appreciate why efficient inventory management is essential. What, though, does effective tracking of your inventory entail? There are more strands and techniques involved than you may think.

As far as inventory management systems go, Linnworks is a platform that comes with pretty decent functionalities. It gives you access to both complex and basic reporting, as well as (limited) automation to make your workflows proceed more smoothly.

While response times may range up to a full week, Linnworks also offers 24/7 support.

Something to bear in mind if you do choose Linnworks is that it lacks a lot of the benefits that make Brightpearl attractive. For example, it has no native payments feature, nor does it come with a built-in warehouse management system like Brightpearl does.

If you’re looking for a simple solution with limited automation, generic reports, and a basic implementation checklist, Fishbowl would be a good fit for you.

If you’re not interested in advanced features like integrations with BigCommerce, Amazon, Ebay, or Shopify, Fishbowl can give you what you need.

In short, Fishbowl is best for small businesses with limited plans for upscaling in the immediate future. It’s not feature-rich, making it poorly suited to anyone hoping to get in-depth data analytics and insights from their inventory management solution.

Formerly known as Tradegecko, QuickBooks Commerce is an inventory management solution that comes with an integration for Xero to let you handle your accounting within the software.

However, QB Commerce doesn’t offer integrated real-time accounting—you’ll have to look to Brightpearl for that.

If you do choose QB Commerce, too, bear in mind that it doesn’t come with high volume connectors, if you’re looking for integrations. It offers order management for your inventory, but this feature isn’t flexible or feature-rich.

Thanks to its basic forecasting features and limited automation rules, Cin7 is another popular choice for businesses seeking inventory management solutions.

Possibly the biggest drawback to Cin7, though, is the fact that it comes with a reputation for less-than-stellar customer service. Despite claiming to provide users with 24/7 customer service, the Cin7 team doesn’t respond to all queries, and when they do, it happens within conventional business hours.

Last on this list is NetSuite, a platform designed with SaaS and tech-based users in mind that’s also occasionally deployed for use within the retail sector. NetSuite does offer an integration for Shopify, albeit for an extra fee.

NetSuite’s implementation period averages around 420 days, meaning you’ve got to be prepared to spend at least one full year on it. To put that number into context, Brightpearl’s own implementation period is around 120 days.

Brightpearl is one of just three partners in Shopify’s Global ERP program, and there are plenty of reasons why.

From our instant performance view feature that lets you track your Shopify data in real-time, to our data-driven forecasting that helps you predict your demand so you can respond appropriately in good time, Brightpearl’s features make it an ideal fit for Shopify users.

Let’s get a quick overview on making inventory software work for you when you choose Brightpearl for Shopify.

Brightpearl for Shopify syncs your accounts across both platforms. That means that any changes made to one are automatically carried over to the other. If you’ve got multiple stores, thanks to Shopify Plus, you can manage them all from the same Brightpearl account.

In the briefest terms, Brightpearl acts as your back office when you use Shopify. That means you get to handle all your admin easily and seamlessly using Brightpearl, while having Shopify act as your virtual storefront.

A stock management system is a solution for organizing all the elements involved in inventory management. It tracks goods along the supply chain, ensuring you know what you have, where it is, and how to manage it effectively.

a. Manual, paper-based inventory management system: This method involves tracking inventory using pen and paper, recording sales and deliveries in a ledger. It is suitable for new or small retailers but can become time-consuming and prone to errors as your business expands.

b. Spreadsheets: Using Excel or Google Spreadsheets with basic or advanced formulas to track inventory, update order status, manage financials, and generate shipping labels. However, relying solely on spreadsheets can become cumbersome and error-prone as your business grows.

c. Standalone inventory management system: Standalone systems often offer a wide range of features at a low cost. However, these systems may lack the quality and functionality required for sustained growth. Reporting capabilities may be limited, and automation of complex orders like multi-location management and dropshipping can be challenging. Self-guided implementation and limited support are common downsides.

d. ERPs (Enterprise Resource Planning): ERPs are complete, integrated systems that handle various processes across inventory and logistics, human resources, finance, and engineering. However, ERPs may not be the best fit for every business due to slow integrations, costly customization, and lengthy implementation times.

The best inventory management system depends on your business needs and growth stage. For fast-growing retail and e-commerce businesses, Brightpearl is often considered the best choice. It is a built-for-retail operating system that streamlines and automates inventory management, order management, inventory forecasting and purchasing, warehouse operations, accounting, and reporting.

An inventory management system involves enabling and automating core workflows. You can refer to our inventory management system workflows for ideas and best practices.