Warehouses, manufacturing plants and retail centers depend on accurate inventory management to maintain production, fulfill customer orders and monitor available inventory. While manually overseeing inventory is a popular option, electronic inventory management systems offer many benefits.
Besides supporting better organization and greater productivity, they're often simple and easy to learn. In this article, we explain what an inventory management system is and discuss 10 benefits of using one.
What is an inventory management system?
An inventory management system is software that helps track a company's inventory and sales. It supports employees by providing accurate inventory numbers and keeping products organized. This helps a company manage its stock, fill orders and track the overall production or sales. Using an electronic inventory management system requires minimal training and can help make inventory management more efficient.
Read more: What Is Inventory Management?
Benefits of using an inventory management system
Using an inventory management system has many benefits for small businesses or large retail or warehouse operations, including:
More accurate inventory
Inventory management systems help businesses fill orders and track products. These systems monitor each product that enters and exits the company during production, storage and sales. Many inventory management systems are also point-of-sale systems, meaning they can process payments and sales, or they can integrate with existing point-of-sale systems.
Businesses with more accurate inventory might reduce internal inventory management costs and establish better relationships with customers and partners.
Related: Q&A: Is Inventory an Asset?
Inventory management systems help reduce company costs by preventing overstocking. When a company has an accurate account of its inventory, it can guarantee sales orders for customers and prevent backorders.
Because companies often keep their inventory in rented or lease storage space, overstocking can create unexpected costs. If it takes months or weeks to clear out the excess inventory, the storage space creates greater costs. Other costs of stocking inventory you could reduce with an inventory management system include:
- Employee wages: Employees must store and manage excess inventory, increasing labor costs for the business.
- Insurance: Renting or leasing a warehouse typically requires an insurance policy to protect the property and its assets, increasing company costs.
- Transportation: Storing excess inventory can increase transportation costs for moving it to and from warehouses.
Automation occurs when businesses use software to make certain processes automatic. With inventory management software, businesses can automate the process to reduce errors, minimize labor costs and produce more accurate stock counts. Automation reduces a company's dependence on human labor and makes the inventory management process more efficient in the long term.
Businesses that use inventory management software can experience higher production rates. With fewer inventory errors to address, companies can focus on producing higher-quality products at faster rates. The business can, then, reallocate labor hours to other tasks to improve the business and make production more efficient.
For example, if a company has three inventory management personnel on payroll, they could reduce that number and save on labor costs by using inventory management software. Then, there's the potential to move one or more of those inventory management employees to another area of the business. This ensures companies are optimizing their workforce.
Related: What Is an Inventory Clerk?
Inventory management systems also help businesses create better organizational systems for inventory. They allow employees to categorize products by size, shape, name or any other useful parameters. Organized inventory can help the business fill orders more quickly and accurately, as well as keep track of products simply and effectively.
For example, an inventory management system can help a car manufacturer organize each piece of machinery by name and batch number. This helps the material-handling personnel find the correct items quickly and allows the company to track each component from the delivery truck to the final product. This can also reduce liability if there's a recall, as every material or product in the system is trackable.
Improved customer experience
An organized and accurate inventory system can help improve the customer experience. Companies can fill customers' orders quickly and accurately, which increases customer satisfaction. This level of customer service can increase customer trust and loyalty, solidifying the relationship between the business and its customers. This helps create a more positive brand image and can lead to increased profits as more customers use your products.
Improved business relationships
An inventory management system can also help companies establish better business relationships. Quick, accurate fulfillment of orders can help increase the trust between two businesses and solidify the existing professional relationship.
For example, a bakery may depend on a flour mill to provide the ingredients it needs to produce its goods. This creates a chain of dependency that an inventory management system supports. If the flour mill employees use an inventory management system, they can track each batch of flour accurately and fulfill the bakery's orders.
Related: What Is Inventory Turnover?
Improved data security
Modern inventory management systems allow users to restrict access to the company's inventory. These permissions help prevent the potential costs of a data breach. Inventory management systems also ensure a company's internal operations remain private from vendors and service personnel. This concentration of information can serve as a buffer against cyberattacks and help make troubleshooting errors more efficient.
Improved data visibility
While inventory management systems make data more secure, they also make it more visible for the company's executive team. Greater data visibility means leaders can make more informed business decisions with fewer errors that could cost time or money. For example, a warehouse manager can see what inventory enters and leaves the warehouse, which can help them find any discrepancies in inventory counts.
Related: How To Track Inventory
Improved coordination between locations
Having multiple warehouses or retail locations means more inventory to manage. An inventory management system can help organize and improve the coordination between different facilities. Greater coordination between locations can help cut costs and improve the sales process, thus increasing the brand's image and attracting new customers.
For example, when one location of a bookstore chain runs low on stock for a certain book, it might need to order more books from another location. An inventory management system can show store associates which locations have the book, how many are in the system and what they cost. They can then place an order through the system, which automatically updates the inventory count at each location.