Inventory management plays a critical role in maintaining operational efficiency and profitability. For manufacturers, it involves tracking inventory from the procurement of raw materials to the distribution of finished goods across channels. In retail and e-commerce, it means managing stock from supplier acquisition to final delivery to the customer.
Despite being a core function, inventory mismanagement contributes to over $1.1 trillion in global losses every year due to stockouts, overstocks, and preventable errors (IHL Group).
An effective inventory management system ensures the right products are available at the right time and place—reducing waste, lowering holding costs, and improving service levels. In this guide, we’ll break down the key concepts, processes, and strategies behind inventory management and how to improve it at every stage.
What is Inventory Management?
Inventory management is the process of tracking, controlling, and optimizing a company’s inventory—from raw materials to finished goods—to ensure products are available when needed, without overstocking or stockouts.
At its core, inventory management helps businesses maintain the right stock levels to meet demand efficiently while minimizing carrying costs and excess inventory. It applies to every stage of the supply chain, including procurement, storage, production, and order fulfillment.
An effective inventory management system gives businesses visibility into what’s in stock, what’s running low, and what needs to be reordered. It also helps identify sales patterns, forecast demand, and plan purchasing more accurately—enabling better budgeting and operational decisions.
For manufacturers, it means tracking materials and components through production. For retailers and e-commerce brands, it means knowing exactly what’s available across channels and warehouses to fulfill customer orders quickly.
What is an Inventory Management System?
An inventory management system is a set of tools—usually software—that helps businesses track, control, and optimize their inventory across the supply chain. It provides real-time visibility into stock levels, item locations, and inventory movements—helping teams make faster, more accurate decisions.
At its core, an inventory management system automates stock tracking, generates low-stock alerts, and syncs inventory data across sales, purchasing, and warehouse operations. More advanced systems include features like barcode scanning, demand forecasting, inventory valuation, and integration with ERP or e-commerce platforms.
Example:
A multi-channel retailer uses an inventory management system to track stock across three warehouses and its online store. When a customer places an order, the system automatically identifies the nearest warehouse with available stock, updates the inventory in real time, and triggers the picking and packing process—ensuring fast and accurate fulfillment.
By using an inventory management system, businesses can:
- Avoid stockouts and overstocking with real-time inventory insights
- Reduce holding costs by keeping inventory lean and demand-driven
- Improve accuracy and efficiency through automation
- Make better purchasing decisions based on historical trends and forecasts
- Streamline operations across locations and sales channels
Why Inventory Management Is Important
Effective inventory management is critical to maintaining operational control, meeting customer expectations, and driving profitability. Here’s why it matters across functions:
- Reduces excess inventory and holding costs: Carrying unsold stock drains cash flow, consumes storage space, and increases risk of obsolescence or spoilage.
- Prevents stockouts and lost revenue: Timely replenishment ensures high-demand items are always available, improving sales performance and customer loyalty.
- Improves order accuracy and fulfillment speed: Real-time inventory visibility enables faster picking, fewer errors, and reliable delivery timelines.
- Optimizes working capital: With leaner, well-managed inventory, businesses can reallocate capital to growth initiatives instead of tying it up in stock.
- Enhances forecasting and demand planning: Data-driven inventory systems provide accurate usage and sales insights, helping plan purchases with precision.
- Reduces waste and markdowns: Especially for perishable or trend-sensitive items, good inventory control helps rotate stock efficiently and avoid write-offs.
- Enables multi-location visibility: Businesses with multiple warehouses or sales channels can manage inventory centrally, reducing duplication and imbalance.
- Supports compliance and traceability: In regulated industries, inventory systems help maintain lot tracking, expiration data, and audit trails.
- Improves vendor management: Accurate reorder data improves supplier relationships by enabling timely, predictable purchasing.
- Builds operational scalability: As businesses grow in complexity, structured inventory processes prevent chaos, delays, and costly errors.
Key Challenges in Inventory Management
Inventory management is full of hurdles that can lead to inefficiencies and lost profits. Here are the key challenges:
- Inaccurate inventory data: Up to 69% of inventory data is often inaccurate due to manual entry errors or untracked stock movements (Retail Systems Research). This leads to stockouts or overstocking.
- Demand volatility: Fluctuating customer demand makes accurate forecasting tough. For example, retailers during Black Friday often face a sudden surge in demand, leading to stockouts if not anticipated correctly.
- Lack of real-time visibility: Without real-time tracking, businesses can face delays. 44% of companies report that they struggle to track stock in real time across multiple locations (Statista).
- Overstocking and understocking: Poor demand forecasting causes either excess inventory or stockouts. Retailers lose an average of 4% of revenue annually due to stockouts (IHL Group).
- Inventory obsolescence: Slow-moving stock can cost businesses. In the fashion industry, for example, 20-30% of seasonal inventory is often unsold by the end of the season, leading to markdowns.
- Inefficient warehouse processes: Disorganized warehouses increase fulfillment costs and time. Companies with poor layout and slow picking processes report 10-15% higher operational costs annually.
- Supply chain disruptions: Delays, especially in global supply chains, can create gaps in inventory. For instance, during the COVID-19 pandemic, global supply chain disruptions led to stockouts across industries, affecting everything from electronics to food.
- Lack of integration between systems: Disconnected systems lead to fragmented visibility. Businesses with poorly integrated tools report 20-30% slower decision-making.
- Complex SKU management: Managing too many SKUs across various locations can be overwhelming. A company with over 1,000 SKUs often faces difficulty maintaining optimal stock levels, increasing the risk of errors.
Different Types of Inventory Management Systems
Choosing the right inventory management system depends on factors like SKU complexity, industry compliance, integration needs, and inventory turnover. Below are the most widely used systems, explained with operational clarity and real-world relevance.
Manual Inventory Management
Manual systems involve recording inventory using spreadsheets or paper logs. While low-cost, they lack real-time tracking, audit trails, or system-driven alerts. Human errors in data entry or missed updates often result in stock discrepancies, poor forecasting, and fulfillment delays.
Example: A small electronics reseller tracks stock levels in Excel, leading to frequent backorders due to outdated entries and no real-time link between sales and inventory data.
Barcode-based Systems
Barcode systems rely on scanning UPC or SKU labels to log inventory transactions—receipts, picks, transfers, or cycle counts. When integrated with WMS or ERP platforms, barcodes improve accuracy and transactional speed, enabling serialized tracking, bin-level accuracy, and shrinkage control.
Example: A B2B distributor uses barcode-enabled handheld terminals (RF guns) to scan items during receiving and picking. Each scan updates stock levels in the WMS, ensuring inventory data aligns with physical movement.
Radio Frequency Identification (RFID) Systems
RFID tags store electronic data and allow passive or active scanning via radio waves, even without direct line-of-sight. Unlike barcodes, RFID enables batch scanning of multiple tagged items, making it ideal for high-volume, high-throughput environments.
Example: An apparel brand with a global footprint embeds RFID chips in clothing tags. As cartons pass RFID gateways at distribution centers, inventory is automatically reconciled, and misrouted shipments are flagged before dispatch.
Cloud-based Inventory Management Systems
Cloud systems offer real-time visibility across sales channels, fulfillment partners, and warehouses. They support API-based integrations with marketplaces, accounting systems, and CRMs, making them ideal for omnichannel businesses. Version control, user access permissions, and mobile compatibility improve operational agility.
Example: A multi-brand skincare company uses a cloud-native platform to track thousands of SKUs across its DTC site, Amazon FBA, and two 3PLs—automatically syncing order volumes, backorders, and reorder points without manual updates.
Perpetual Inventory System
This system updates inventory records in real time using data from POS systems, warehouse operations, or API integrations. It provides continuous visibility, enabling proactive replenishment, demand forecasting, and inventory valuation.
Example: A supermarket chain with 100+ locations integrates its POS with a central inventory system. Every product sold, returned, or transferred adjusts stock levels instantly—triggering low-stock alerts for auto-replenishment from distribution hubs.
Periodic Inventory System
Inventory is physically counted at fixed intervals (e.g., weekly or monthly). Stock levels are reconciled against previous balances and sales data to determine consumption or shrinkage. It lacks transactional granularity and suits low-SKU, low-velocity environments.
Example: A niche apparel brand performs end-of-month cycle counts and adjusts inventory in bulk within their POS. Due to the absence of daily stock adjustments, missed shrinkage or miscounts often distort profitability metrics.
Enterprise Resource Planning (ERP) Systems
ERP systems like SAP, Oracle, or NetSuite centralize inventory data with finance, procurement, and production workflows. They support multi-location inventory visibility, role-based access, procurement automation, and advanced audit compliance.
Example: A global electronics manufacturer uses ERP to plan production schedules, trigger JIT orders from vendors, and track stock across 50+ locations—ensuring synchronized financial and operational reporting.
Just-in-Time (JIT) Inventory Systems
JIT systems aim to minimize on-hand inventory by synchronizing material arrival with production or customer demand. It reduces holding costs but increases supply chain risk. Vendor lead-time reliability and forecast accuracy are critical.
Example: An OEM automotive supplier uses JIT to receive steering assemblies 12 hours before installation. Their system buffers inventory for only 1 day, relying heavily on predictive ordering and vendor reliability to avoid shutdowns.
Batch Tracking Systems
Batch or lot tracking systems assign identifiers to groups of products manufactured or received together. They’re crucial for compliance-heavy industries like food, pharma, and chemicals, where traceability, expiration management, and recall readiness are mandatory.
Example: A pharmaceutical company uses batch tracking to link each shipment of insulin pens to the original batch, including manufacture date, quality checks, and expiration. If a defect is found, only the affected batch is recalled.
Material Requirements Planning (MRP) Systems
MRP systems calculate what materials are needed, when, and in what quantity based on sales orders, BOMs (bills of materials), and production lead times. MRP optimizes purchasing and production, minimizing both shortages and excess.
Example: A contract furniture manufacturer uses MRP to forecast wood and fabric requirements based on a rolling 60-day order pipeline. The system prevents understocking during peak season while avoiding overproduction of slower-moving variants.
How Inventory Management System Solves Inventory Challenges
Real-time inventory visibility
With inventory management software, warehouses can improve their inventory visibility across supply chains or in-house. Warehouse managers will have granular SKU level visibility at their fingertips and will be better equipped for taking efficient business decisions. Integration of smart shelves, drones, cameras, and other IoT-enabled devices in the warehouse can provide accurate inventory information in real-time.
Effective inventory tracking will help warehouses to reduce operational costs and cut down on dead stocks. Expired products offer no value to you or the customer, while slow-moving stocks end up costing more money in storage than they would have earned after sales.
Insight about the stock level is also essential for preventing overstocking or understocking scenarios. Managers will have accurate information about depleting SKUs that need to be reordered, products that aren't selling, and products that are in high customer demand.
Being on top of stock levels and market trends will give your business an edge over competitors.
Audit and Compliance
From receiving a shipment to final dispatch, a typical inventory management process contains a lot of moving parts. Inventory audits are an essential component of a well managed business. However, they can be extremely time-consuming, often hindering the compliance process.
Some of the best inventory management software offer superior audit and compliance abilities to your warehouse. They enable real-time inventory tracking and comprehensive SKU audit trail from receipt to dispatch.. They also aid in reducing human intervention, to make audits less time consuming.
Frequent auditing keeps managers aware of their inventory status and helps them comply with different government regulations easily. We enable warehouses to follow best practices like First Expiry First Out (FEFO), First In First Out (FIFO), and Last In First Out (LIFO), PIPO (pallet in Pallet Out) for perishable products and consumables.
Dynamic Inventory Optimization
Manual reordering and replenishment of stocks is a time-consuming and error-prone process. Advanced warehouse softwares enables dynamic Inventory by leveraging AI algorithms to maintain minimum and maximum stock levels dynamically.
The intelligent system will notify warehouse managers if the stock of a certain SKU is going below the threshold level or if it has exceeded the optimal level and shouldn't be ordered further.
Managers will no longer need to move around the warehouse to keep a record of every stock manually. They can instead focus on better planning of inventory replenishment based on customer trends and maximize profitability.
Inventory Placement
Cargo unloading is the first thing that happens after a shipment is received. It is followed by the arrangement of products on their respective shelves. This is an important step as proper placement of products can save valuable search time for an associate during picking while fulfilling an order. Warehouse inventory management software helps optimize the product placement by using automated machine learning-driven ABC analysis.
The machine learning algorithm will then automatically identify an item according to the criteria it fulfills and suggest the class it fits in. This will eliminate the need for manual classification and the concerned item can then be placed in an optimal location based on the frequency with which it is ordered.
A routing algorithm can also map the shortest way for an employee to retrieve an item, saving valuable time in dock-to-stock and pick-to-ship cycles.
9 Best Inventory Management Techniques
1. Six Sigma
Six Sigma is a set of strategies and tools used to improve processes and maximize efficiency within an organization. It is based on the idea that when data is collected and analyzed, organizations can identify areas for improvement, eliminating defects and reducing waste.
When applied to inventory management, Six Sigma can help businesses create more efficient processes, reduce the amount of inventory needed on hand, and ultimately increase profitability.
The five stages of the Six Sigma process are define, measure, analyze, improve, and control. During each of these stages, organizations can identify opportunities for improvement and develop strategies to increase efficiency.
2. ABC Analysis
ABC analysis is a method of inventory management that categorizes items into three groups based on their value. Items in group A are the most valuable and need to be closely monitored and managed, while items in group C are the least valuable and require less attention.
This method helps businesses prioritize their inventory management efforts and ensure that their resources are being allocated properly. Additionally, it can help businesses identify areas where they may be able to cut costs and increase efficiency.
3. Just-in-Time (JIT) Inventory Management
Just-in-time inventory management is a method of tracking and managing stock levels that focuses on ordering and delivering items only when they are needed. This type of system helps businesses reduce the amount of money tied up in their inventory by ensuring that products are not overstocked or understocked.
Additionally, it can help businesses save time and money on inventory management by reducing the amount of administrative work associated with tracking stock levels.
4. FIFO (First In First Out)
FIFO is a cost flow assumption that assumes that the first items to enter inventory are also the first ones to be sold or used. This technique is most often used when products are seasonal or have a short shelf life.
It is advantageous in cases where the cost of goods is increasing, as it allows businesses to recognize the highest cost items first. However, it can be disadvantageous if the costs of goods are decreasing, as lower-cost items will be recognized last.
5. LIFO (Last In First Out)
LIFO is one of the popular inventory management techniques that assumes that the most recently purchased or produced items are sold or used first. This technique is advantageous when costs of goods are decreasing.
It will allow businesses to recognize the lowest cost items first. However, it can be disadvantageous in cases where costs of goods are increasing, as higher-cost items will be recognized last.
6. Demand Forecasting
In order to effectively manage inventories, businesses must accurately forecast demand for their products. There are several different inventory management techniques available for forecasting demand, including trend analysis, seasonal indexing, and regression analysis. Trend analysis involves analyzing historical data to identify patterns in a product’s sales over time.
Seasonal indexing involves examining past sales of similar products during the same period of the year to make predictions about future demand. Regression analysis uses mathematical models to identify relationships between different variables and predict future demand.
7. Economic Order Quantity Model
The economic order quantity (EOQ) model is a mathematical formula used to determine the optimal order size for inventory, based on costs associated with ordering and holding inventory.
The EOQ inventory model considers factors such as ordering costs, carrying costs, and lead times when determining the optimal order size. This inventory management technique is useful for businesses that are looking to minimize their inventory costs while still ensuring they have sufficient inventory on hand to meet customer demand.
8. Cross Docking
Cross docking is a technique used by businesses to streamline the supply chain process. It involves receiving product from suppliers and immediately transferring it to customers without taking the time to store it in a warehouse.
This inventory management technique is useful for businesses looking to reduce inventory costs, as it eliminates the need for warehousing and associated costs such as storage fees and personnel.
9. Safety Stock Model
The safety stock model is a technique used by businesses to ensure that they have enough inventory on hand to meet customer demand, even in cases of unexpected fluctuations.
A safety stock level is calculated based on the standard deviation of historical data and can be used to provide a buffer between actual and forecasted demand.
These were some of the best inventory management techniques to help you manage your inventory and meet customer demands seamlessly and efficiently.
How Is Inventory Management Different From Other Processes?
Inventory management system is used to plan, organize, and track the movement of products and supplies within a business. It involves tracking the levels of available items in order to ensure that production and sales are running smoothly.
Unlike other processes, inventory management focuses on managing both tangible and intangible goods. This includes tracking raw materials, components, finished products, as well as services related to production or sales. Additionally, it involves monitoring supplier relationships and more.
Inventory Management vs. Inventory Control
Inventory management and inventory control are two related but distinct processes used to manage the flow of products and supplies within an organization. Inventory management is focused on optimizing the supply chain, while inventory control is focused on tracking the movement of goods and ensuring that stock levels remain accurate.
Inventory management involves activities such as planning and forecasting future demand, managing supplier relationships, improving production processes, and maintaining accurate records. On the other hand, inventory control deals with more specific processes like tracking raw materials or finished goods, setting reorder points, and maintaining par levels. Additionally, inventory control focuses on monitoring stock levels in order to minimize waste or shortages due to fluctuations in demand.
Inventory Management vs. Inventory Optimization
Inventory management and inventory optimization are also two related but distinct processes used to manage the flow of products and supplies within an organization. Inventory management focuses on optimizing the supply chain, while inventory optimization takes it a step further by focusing on maximizing efficiency in order to improve profitability.
Inventory management involves activities such as planning and forecasting future demand, managing supplier relationships, improving production processes, and maintaining accurate records. On the other hand, inventory optimization involves using data analytics to identify trends in customer demand, setting up efficient stocking policies, and utilizing technology solutions such as artificial intelligence or machine learning to automate certain tasks.
Additionally, inventory optimization can also include activities such as analyzing pricing strategies or running simulations to test different scenarios in order to maximize profits.
Inventory Management vs. ERP
ERP (Enterprise Resource Planning) is a system used to manage the flow of data and resources within an organization. It helps businesses consolidate their operations such as finance, human resources, and inventory management into one comprehensive system. ERP systems offer companies the ability to access real-time data, streamline processes, and automate tedious tasks.
Inventory management is the process of tracking and managing the levels of available items in order to ensure that production and sales are running smoothly. This involves activities such as planning and forecasting future demand, managing supplier relationships, improving production processes, and maintaining accurate records. On the other hand, ERP systems focus on automating processes across multiple departments
Inventory Management vs. Order Management
Inventory management and order management are two related but distinct processes used to manage the flow of products and supplies within an organization. Inventory management focuses on optimizing the supply chain, while order management deals with more specific processes like tracking orders and ensuring that customer requests are fulfilled in a timely manner.
Inventory management involves activities such as planning and forecasting future demand, managing supplier relationships, improving production processes, and maintaining accurate records.
On the other hand, order management deals with more specific processes like tracking customer orders, setting up fulfillment systems, keeping track of inventory levels, and ensuring that orders are processed efficiently. Additionally, order management also involves activities such as managing payment processing systems or providing customer support.
Inventory Management vs Logistics Management
Many people believe that they are one and the same, but this is not true. While there are similarities between them, they serve different purposes and have different goals.
Inventory Management focuses on managing the stock of items available for sale at any given moment. This includes keeping track of what items are in stock, when they will be used, how to replenish them, and which items should be removed from inventory due to age or lack of demand. It also involves managing the flow of inventory from suppliers to customers.
Logistics Management, on the other hand, focuses on managing the physical movement of goods and services from one place to another.
This includes planning and controlling all aspects of the supply chain process such as transportation, warehousing, packaging, and order fulfillment. It also involves optimizing the efficiency of a business's logistics operations in order to reduce costs and improve customer service.
Inventory Management vs Warehouse Management
Inventory management is focused on managing the movement of goods within a business’s system, while warehouse management is focused on managing the storage and organization of goods in the company’s physical warehouse.
Inventory management includes activities such as tracking sales orders, ensuring product availability, forecasting demand and purchasing additional inventory when needed. It also involves tracking raw materials used in production, monitoring levels of finished products and adjusting inventory levels accordingly. The main goal of inventory management is to ensure that the company has enough inventory of the right items at the right times.
Warehouse management, on the other hand, is focused on ensuring efficient storage and organization of goods in the physical warehouse. It includes activities such as organizing stock for easy access, labeling items for identification, and tracking the location of each item. The main features of the warehouse management system is to ensure that goods can be retrieved quickly and accurately when needed.
How To Manage Inventory Effectively & Efficiently
Here are some of the key inventory management methods and ways that can help you streamline your inventory management.
1. Product Category Demand Analysis
The initial process in seamless inventory management is to understand your business’ product category and its demand trends. Having knowledge of the products’ demand trends will help you handle inventory better.
You can study demand fluctuations, seasonal trends, or competitor data if you are starting new and if you have your existing past data then you can conduct demand analysis to see when you require what amount of inventory.
2. Set Par Levels
Setting par levels is an important part of effective inventory management as it helps businesses remain cost-efficient and ensure accurate stock control. Par levels are predetermined minimum and maximum quantities of a product that should be kept in stock at all times, based on the rate at which they are used.
By setting these levels, businesses can reduce the risk of overstocking or understocking items, and optimize their ordering processes by knowing when to place orders for new products.
3. Inventory Storage
Inventory storage includes two aspects: whether you are storing inventory internally in your own ecommerce warehouse or whether you are storing externally with fulfillment centers or 3PL warehouses.
If you are storing internally then you will need to have an inventory management system or software to help you manage your inventory and if you are storing externally then you will need to sync your inventory management system with their tools and softwares.
4. Inventory Tracking
Irrespective of internal storage or outsourced storage, you will need to track the inventory data such as stock keeping units (SKUs), Quantities on hand, orders shipped, avg. order value, high performing products, storage location, and many more.
Tracking the inventory data will streamline your inventory management process and make it hassle-free for all the parties involved. This way the products can move easily from end-to-end with maximum efficiency.
5. Inventory Receiving
It is imperative that stock check-in procedures are accurate to avoid errors that can negatively impact product quantity on hand (QOH) data at warehouse receiving process. Such errors can result in over-ordering, false backorders, and unsold stock, which can all have a detrimental effect on your bottom line.
To ensure accuracy, it is recommended that you receive stock against your purchase order and open and check all cases and containers for correctness. Relying solely on box labels and supplier packing slips can lead to mistakes, as their staff may also make errors.
The prompt and accurate receipt of inventory shipments is a crucial aspect of effective inventory management.
5. Timely Audit of Inventory
Despite the use of reliable inventory management software, it is still necessary to physically count inventory periodically to ensure accuracy. Businesses employ various techniques, such as a comprehensive year-end physical inventory that accounts for all items and ongoing spot-checking, particularly for fast-moving or difficult-to-stock products.
Cycle Counts: Cycle counting is a type of inventory management system that utilizes scheduled counts of products in order to ensure accuracy. This type of system can help businesses save time and money by eliminating manual processes such as counting items or entering data into spreadsheets.
6. Leverage Inventory Management Software
This is a no-brainer. Inventory management software is the cornerstone of managing inventory successfully and effectively. Inventory management software includes consistent or real-time inventory tracking, products information, low stock updates, etc.
Moreover, features like purchase management, supplier management, inventory reporting, data security, advanced analytics, and customer support can help in managing inventory easily and efficiently.
7. Invest in Technology and Automation
Along with the inventory management software, you can also integrate other inventory and smart warehousing technologies and automation tools to make the management process more automated and digitized.
Technologies and automation tools like RFID, Barcode system, warehouse management system, automated guided vehicles, robotics, and AI tech can enable seamless in and out flow of products from the warehouse.
8. Implement Consistent Data Analysis
Data analysis is an important component of effective inventory management as it helps businesses identify areas for improvement and develop strategies to increase efficiency. By analyzing data, organizations can determine the most efficient ways to order and manage products, ensuring that resources are allocated properly.
Additionally, data analysis can help businesses identify patterns in their inventory levels, allowing them to predict future needs and make informed decisions about ordering and stocking items.
These are some of the key ways to manage inventory effectively. Additionally, there are other possible ways in each step of the process be it receiving, storing, or shipping where you can implement systems and methods to optimize inventory management process further.
How to Choose an Inventory Management Software?
When it comes to choosing an inventory management system, there are several factors that need to be taken into consideration.
The first step is to identify the specific needs of your business and how you plan on using the system. Do you require a more complex solution or are basic features enough?
Moving ahead, once you have identified the need, you can look for the following aspects to choose an inventory management software:
1. Features
You must first explore the complete list of features that every inventory management software has to offer for your business. You can list down the key features that are non-negotiable or must-haves followed by highlight features and then if possible some add-on features.
You can define the feature requirements based on your business needs like do you want a system for material handling or are you looking for management in shipping orders or do you have a huge amount of wholesale orders?
2. Integrations
Integrations of an inventory management system means synchronization and collaboration with ecommerce marketplaces, 3PL, point of sale, shipping, etc.
Integrations with these platforms enables the inventory management software to manage end-to-end fulfillment aspects through one place with no extra hassle and dependencies. ‘
3. Ease of Use
As we earlier mentioned about features and integration functionalities, these can lead to an inventory management software becoming more complex and technically-advanced leading to problems in use.
Therefore, you should aim to look for an inventory management software that brings all the required features and functionalities under one roof with seamless navigation and implementation for the ease of use.
4. Software Cost
The first thing to compare here is to take an avg. inventory management software cost and compare it with the costs that you are incurring without the inventory management software. If this cost is equal or less than current costs then you should definitely get an inventory management software.
Moreover, you can compare different inventory management software in the market to see the best value offer based on your feature requirements and purpose.
5. Innovation and Scalability
Just because you are shipping, selling, or managing X amount of products today doesn’t mean that you should look for an inventory management software that can fulfill today’s needs.
You should take into consideration the scalability and growth of your business. If an inventory management software is scalable and innovative then it will adjust seamlessly as your business grows then you won’t face any challenges in the future.
6. Support
Since we are using software, needing support is a general thought. You might need support for product use, issues, and other assistance as you implement the software into your business.
Therefore, the inventory management software should have both human and digital support resources which can provide assistance as and when required throughout the day and year.
Finally, research different providers and compare their services in order to find the one that best meets your needs.
Additionally, inventory management software can enable companies to better plan for future demand by providing accurate forecasting data. Furthermore, they can also help companies streamline their operations by integrating with other business processes such as accounting or supply chain management.
Hopstack: The Best Inventory Management System for your business
Hopstack's cloud-based digital warehouse software automates and digitizes your warehouse by easily integrating with robots, ERP, and WMS.
Here are the main features of our inventory management software.
- Optimal Space Planning and Picker Routing
- Multiple Accounting and Billing Tools Integration
- Invoice Creation and Management
- Advanced Picking with Route Optimization
- Warehouse Layout Optimization
- KPIs and Daily Performance Tracking
- Predictive Analytics and Productivity Report
- Material Handling, Cycle Counting, and Quality Control
- Automated Inventory Update and Management
- Distributed Order Management and Fulfillment
- Order Batching, Picking, Packing, and Sorting
- Label Verification and Generation
- Multi-Warehouse and Workflow Management
- Marketplace, Carrier, and Vendor Management
- 24/7 Expert Customer Support
From reducing software deployment time, increasing efficiency of existing resources, to increasing warehouse throughput, Hopstack not only reduces onboarding, training, and payroll costs but makes your inventory smarter.
Future of Inventory Management
The future of inventory management looks to be highly optimistic. With the help of technology, inventory control will become more automated and efficient. Companies will be able to utilize data analytics, artificial intelligence, and machine learning to identify customer trends and optimize stocking policies.
Additionally, new technologies such as blockchain and the Internet of Things will allow for real-time updates on inventory levels, allowing for improved inventory accuracy and better decision making. The future of inventory management is sure to include automation, improved accuracy, and greater efficiency that in turn helps organizations increase their profits while providing a better customer experience.
FAQs on Inventory Management
1. What is the difference between perpetual and periodic inventory systems?
Perpetual inventory systems update stock levels in real time as transactions occur, using POS, barcode scanners, or integrated WMS. Periodic systems only update inventory after a manual stock count at set intervals (e.g., monthly), often resulting in less accuracy and delayed insights into shrinkage or overstocks.
2. How does an inventory management system integrate with ERP software?
Inventory systems integrate with ERP software via APIs or middleware to synchronize data across finance, procurement, production, and sales. This allows real-time inventory visibility within broader workflows like MRP (Material Requirements Planning), financial reconciliation, and order-to-cash processes.
3. What is inventory turnover ratio, and why is it important?
Inventory turnover ratio measures how many times inventory is sold and replaced during a period. It’s calculated as:Inventory Turnover = COGS / Average Inventory.
A high turnover indicates efficient inventory use and strong sales, while a low ratio signals overstocking or poor demand planning.
4. What is batch tracking in inventory management, and where is it used?
Batch tracking assigns unique batch or lot numbers to a group of items produced or received together. It’s essential for traceability, especially in pharmaceuticals, food, and cosmetics, enabling targeted recalls and regulatory compliance by tracking expiry dates and quality control per batch.
5. How does RFID improve inventory accuracy compared to barcode systems?
RFID (Radio Frequency Identification) allows bulk item scanning without line-of-sight, significantly reducing manual effort. It improves inventory accuracy by 95–99%, according to GS1 studies, as items are automatically tracked during movement, reducing missed scans, human error, and time spent on counts.
6. What role does demand forecasting play in inventory optimization?
Demand forecasting uses historical sales, market trends, and seasonality to predict future inventory needs. Accurate forecasting reduces stockouts, avoids overstocking, and supports just-in-time replenishment. Advanced systems apply AI/ML models to refine forecasts based on real-time data.
7. How can businesses reduce inventory holding costs without affecting service levels?
Businesses can reduce holding costs by implementing just-in-time systems, automating reorder points, using ABC analysis for prioritization, and leveraging 3PLs or drop-shipping to reduce storage needs. Safety stock can be adjusted dynamically based on lead time variability and demand accuracy.
8. What is cycle counting and how is it different from full physical inventory?
Cycle counting involves counting a subset of inventory items on a rotating schedule rather than doing a full count. It’s more efficient, reduces disruption, and allows continuous error correction. High-value or fast-moving items are counted more frequently using ABC classification logic.
9. How does inventory management affect cash flow?
Poor inventory management can tie up working capital in unsold goods or result in lost sales from stockouts. Optimized inventory levels free up cash, reduce warehousing costs, and improve liquidity, directly impacting a company's ability to invest, grow, or meet financial obligations.
10. What KPIs should be tracked in an inventory management system?
Key inventory KPIs include:
- Inventory Turnover Ratio
- Days Sales of Inventory (DSI)
- Stockout Rate
- Order Accuracy Rate
- Carrying Cost of Inventory
- Cycle Count Accuracy
Tracking these helps measure operational efficiency, fulfillment accuracy, and cash flow impact.
