What is Inventory Management Systems and Why It is Important?

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An inventory management systems is a tool that helps businesses keep track of and manage their products before they sell. Whether done automatically by a computer or manually by people, these systems aim to reduce costs. Moreover, they ensure there's enough stock available for customers.
 

Let's dive into the world of inventory management systems to help you find the perfect fit for your company. We'll talk about the different types of systems, how they work, and examples, and offer some helpful tips for buying one. Keep reading to find out more!

What are Inventory Management Systems?

An inventory management system is also known as an inventory system. It helps you keep track of your products from the moment they're bought to when they're sold. In short, it assists in managing your inventory throughout your business operations. If your business has a lot of stuff in stock, it is necessary to manage it well to stay efficient and profitable. An effective inventory management system helps you do just that.
 

Every company that deals with physical goods needs a way to manage their inventory. Some use simple tools like Excel or Google Sheets, while others choose specialized software created for managing inventory efficiently and saving money.
 

The best inventory management systems for your business will depend on how big your business is, how complicated your operations are, and how much inventory you have to keep track of. These factors help you choose the right system for your needs.

Why is Inventory Management Important?

If your business deals with products, you need a system to organize them accurately. Otherwise, you'll end up in a mess where you have too much of some things and need more of others.

A recent study found that businesses with multiple products can save a ton of money each year by using an automated inventory system instead of doing everything manually. But even smaller businesses benefit a lot from these systems.
 

Here are five reasons why inventory management systems are so prominent:
 

• These systems let you track everything you have, where it is, and when you need more.
• With valid stock information, you can avoid operating out of things your customers want. That means more sales and happier customers.
• By categorizing your expenses for production and sales, you can determine the profit margin for each item.
• Instead of constantly checking stock levels by hand, the system does it for you, saving time and effort.
• To conduct accurate accounting, it's crucial to have a clear understanding of what items are present in your inventory. These systems help you keep track of and make sure your financial reports are accurate.

For manufacturers, these systems also help what you need to make something and where to find all the parts.

What is the Inventory Management Process?

Managing your inventory has three main steps:
 

• First, you buy the things you want to sell. These goods are then brought to your warehouse or store.
• Next, you store these items until you need them. They can move around in your storage system until it's time to send them out.
• When orders come in, you grab the items from your inventory and ship them to customers. As a result, it is where you make your profit!

Now, we will discuss some common examples of inventory management.

Examples of Inventory Management Systems

Businesses use different methods to manage their inventory. Let's look at two examples:
 

1. Simple System for Small Business: Carlos and Maria run a shop selling food hampers. They buy ingredients in bulk and repackage them. Carlos uses a basic Excel spreadsheet to track what they have and what they need to order. Maria updates it when they sell something. This spreadsheet is their inventory system, helping them know what's in stock when things expire, and when to buy more.
    

2. Advanced System for a Big Company: On the other hand, ToyFun Inc. is a company that makes and sells toys globally. They have warehouses worldwide and sell online. Managing all this stuff is complicated, so they use high-tech cloud-based software. It shows them exactly how much stock they have in each warehouse and keeps track of online sales. They can even predict future sales and evaluate their suppliers' performance. However, it helps them make savvy decisions to grow their business.
    

These examples show how businesses manage their inventory, from simple spreadsheets to advanced software systems.

Types of Inventory Management Systems

There are many types of IMS, each suited for different business needs. Let's discuss some common types:
 

1. Spreadsheet-based System: It uses Excel or Google Sheets to track inventory. Moreover, it's simple and low-cost but prone to errors and not ideal for complex businesses.
2. Basic Stock Management: Some business apps offer basic inventory features, a step up from spreadsheets but not as comprehensive as dedicated inventory software.
3. Automated Inventory System: These track and control stock automatically, saving time and improving accuracy. They can be complex to set up but are efficient in the long run.
4. Warehouse Management System (WMS): They are specifically for organizing and optimizing warehouse operations. It's different from inventory management but complements it.
5. 3PL Inventory System: Helps third-party logistics companies manage goods in and out of their centers. In addition, they are helpful for businesses with multiple clients and complex logistics.
6. Accounting and Inventory System: They integrate inventory management with financial reporting. As a result, it ensures accuracy and consistency.
7. ERP Inventory System: A comprehensive solution covering multiple aspects of business planning, but it can be expensive and complex.
8. Barcode Inventory System: Uses barcodes to track and manage goods, improving accuracy and supply chain visibility.
9. Cloud-based Inventory System: Records inventory data online, making it accessible remotely and integrating with other cloud systems, reducing manual tasks and costs.
10. Asset Inventory System: Manages physical and digital assets needed to run a business. Moreover, it focuses on resources beyond product inventory.

Each inventory management system has pros and cons, so choosing the right one depends on your business's size, complexity, and specific needs.

Inventory Management Techniques

Businesses use various methods to manage their inventory, depending on their products and operations. Here are four methods:
 

1. Just-in-Time Management (JIT): This method, popularized by Toyota, focuses on keeping only the inventory needed for production and sales. It saves money by reducing storage costs and waste but can be risky if demand suddenly increases and inventory isn't available.

2. Materials Requirement Planning (MRP): MRP relies on accurate sales forecasts to plan inventory needs and communicate with suppliers. For example, a ski manufacturer uses MRP to ensure they have materials like plastic and wood based on expected orders.

3. Economic Order Quantity (EOQ): EOQ calculates the optimal number of units to minimize inventory costs. It balances holding costs (costs of storing inventory) and setup costs (costs of ordering and setting up inventory).

4. Days Sales of Inventory (DSI): DSI shows how long it takes for a company to sell its inventory. A lower DSI is better as inventory is sold faster, but the ideal DSI varies by industry.

These methods help businesses manage inventory efficiently and reduce costs, but each has pros and cons depending on the business's needs and industry.

Best Inventory Management Software

Here are some top inventory management systems options tailored to different types of businesses:
 

• Cin7: Great overall solution for many types of companies.
• Ordoro: Ideal for sellers managing sales across multiple channels.
• inFlow: Perfect for B2B and wholesale-focused businesses.
• Katana: Best choice for manufacturers needing robust inventory control.
• Zoho Inventory: Offers excellent value for businesses looking for cost-effective solutions.
• ShipBob Merchant Plus: Ideal for enterprises using hybrid fulfillment strategies.
• Fishbowl Inventory: A top pick for QuickBooks users needing seamless integration.
• Extensive: It is designed specifically for drop shippers and those using Fulfillment By Amazon (FBA) services.
• Sortly: Great for small retailers and businesses needing asset tracking capabilities.
• monday.com: Offers a free inventory management software option, perfect for businesses on a budget.

These simple inventory management software cater to different business needs so you can find the right fit for your specific requirements and industry. 

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Inventory Management VS Inventory Control

Inventory management and inventory control are related but focus on different aspects:
 

• Inventory Management: Inventory Management is about the bigger picture of handling inventory. It includes ordering, storing, and using inventory, from raw materials to finished products. It helps businesses decide what to order, how much, and when. Inventory management tracks inventory from suppliers to customers, ensuring there's enough stock but not too much.

• Inventory Control: It is a part of inventory management. As a result, it focuses on day-to-day stock management in warehouses. It includes receiving, storing, transferring, and fulfilling orders and returns. Controlling inventory means managing the flow of stock to meet customer orders efficiently.

In simple terms, inventory management is about planning and strategy, while inventory control is about the hands-on management of stock in real-time. Both are crucial for a smooth supply chain and meeting customer needs.

Conclusion

In summary, using an inventory management systems is the best move that can boost how well your business runs, how much money it makes, and how happy your customers are. If you know what to look for in a system and how it can help you, you can make your inventory management smoother and make your business even more successful.