Inventory Management Software

Inventory management software helps companies maintain a balanced level of product supply and avoid overstock or product outage. Keeping the correct inventory levels assures that a business can maximize its profits and minimize the costs associated with depreciation of inventory or overspending. The right software keeps inventory information up-to-date, alerts managers to low inventory levels, and some programs can even generate automatic purchase orders.

However, there are dozens of inventory management software programs, each with different features, functions, and usability requirements, so navigating that market can be a daunting task. That’s why we’ve created this buyer’s guide. Here’s what we’ll cover:

What is Inventory Management Software?
What Type of Buyer Are You?

The Software Vendor Landscape
Market Trends You Should Understand
Benefits & Potential Issues

What is Inventory Management Software? 

The right software keeps inventory information up-to-date by tracking product levels as well as orders, sales, and deliveries. It can also alert managers when inventory reaches a critically low level to ensure that a company never runs out of a particular product. Some inventory software packages can generate automatic purchase orders to fill a new order when inventory levels dip below a set minimum amount. Inventory management software can be purchased as a standalone, or best-of-breed system, or as a component of a more general accounting software package.

Inventory management software can more easily determine the value of a company’s current inventory of items. Upon delivery of an item, the software can automatically add the item’s value to the company’s accounts and list it as “in-stock” for customers to order. This can be done immediately for products when they are delivered, even if not all products are delivered at the same time. Inventory management software can also help integrate stock in different locations into the company’s overall accounting records. Various types of inventory can be kept organized and accessible through the use of this method.

Leading inventory management systems are flexible enough to account for different inventory accounting, such as “last in, first out” or “first in, first out.” This flexibility ensures that a company can find an accounting method tailored to its own strategies; it can even retain the same software in the midst of structural changes. Inventory management software can make otherwise difficult accounting calculations significantly easier. For example, when it comes to products made up of multiple components, it is possible to set up a product assembly for the finished product. This allows the user to bypass the management of each component separately. The simplified process allows for greater efficiency in distribution of inventory.

What Type of Buyer Are You?

Although most inventory management programs have similar functionality, there are differences between programs. Different types of inventory software serve organizations with different types of inventory. Buyer types include:

• Single-site businesses: Smaller businesses will just want some of the basic functionality associated with inventory control, such as lot tracking and order processing.
• Multi-site businesses: Adding warehouse sites to your business immediately adds a level of complexity to inventory management requirements. Therefore, multi-site businesses will need a product that is slightly more robust and capable of tracking information across locations and balance inventories. Other features at this level will include automated reordering.
• Businesses with special inventory requirements: Systems for perishable goods will track “sell by” dates and prompt employees to clear expired inventory. In construction and related industries, many products are sold by length, weight, or volume, requiring a system that tracks those details. Even service-oriented companies can make use of the right inventory management software, keeping track of the perceived costs of their services, including the materials used in performing them.

Businesses looking for inventory management accounting software should consider the following as part of their selection process:

• What are the tracking capabilities of the software (by product category, department, matrix, seasonal order levels, serial number, special orders)?Will there be a need to track products in multiple locations? If so, how will employees at each location access the software?
• What type of products does the company count as inventory (service capital, durable goods, permissible goods)?
• Does the software generate automatic purchase orders when inventory levels decline below a set threshold?
• Is the system capable of EDI (Electronic Data Interchange) for cases in which ordering new supplies occurs frequently?
• Does the software have bill of material (BOM) process capabilities for inventory made up of different materials?

It’s also critical to consider whether inventory management is the only application you need, or if you’re looking for a more comprehensive accounting and/or warehousing program that includes accounts payable/receivable, budgeting and forecasting, transportation control, and business intelligence.

The Inventory Management Software Vendor Landscape

These are some of the major players in the inventory management software market:

Market Trends You Should Understand

The primary trends affecting the inventory management market include:

• Automated reordering. Advanced inventory tools like vendor managed inventory and electronic purchase orders enable companies to be proactive about keeping items fully stocked. Automated re-orders and re-order reminders used to be an advanced feature available only as part of the most advanced systems, but this and other features are fast become available as part of even the smallest inventory management systems.
• RFID. Radio Frequency Identifiers are also becoming less expensive and more accurate, expediting updates, improving efficiency, and eliminating bottlenecks in shipping and receiving.
• Software as a service (SaaS). Many vendors are now offering web-based platforms with a monthly fee for service. This eliminates the need for expensive IT infrastructure investments. Inventory management vendors are a bit behind this trend, which means we can expect the number of SaaS providers to increase in the coming years.

Benefits & Potential Issues

A strong inventory management system provides the following concrete benefits:

• Balanced product supply. First and foremost, accurate tracking of orders and shipments means you know exactly what’s coming in and what’s going out. This helps to avoid product shortages or overstocks, and in multi-site systems lets you process inventory to and from whichever location has the abundant stock.
• Simpler process control. The software keeps inventory information up-to-date on an automated basis, which vastly simplifies the control of inventory supplies. Generate automatic purchase orders when levels drop below a certain threshold further simplifies the ordering process, leaving managers for more complicated and creative tasks than counting products and placing orders.
• Cost savings. By eliminating overstocks and shortages, inventory management software provides a direct return on investment, eliminating unnecessary storage costs and lost orders due to lack of inventory.

Of course, with any software selection, implementation can be a major concern. For that reason it’s important to have all potential users involved in the selection process. This way they have buy-in and can get excited about the new software, rather than having it be something forced on them from above.

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