Complete Inventory Management System Buying Guide

Looking for an inventory management system to manage your inventory and not sure what the right solution is for your business? You’ve come to the right place. We’ll guide you through the whole inventory management system evaluation process from major inventory management solutions and who they’re designed for, to buying selection criteria.

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Brightpearl: Retail-tailored operating system for advanced inventory management and beyond

If you’re a fast-growing e-commerce brand looking for a flexible central system to automate multi-channel inventory and orders, and gain insight on your business performance, Brightpearl may be the right
solution for you.

As the industry-leading Retail Operating System, Brightpearl is designed to automate all the time-consuming yet critical post-purcha+se operations including inventory management, order management, warehousing, fulfillment, shipping, purchasing, accounting, retail BI and more. Brightpearl will help you save time, make data-driven decisions, so you can achieve your growth goals. Here’s how…

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1. Easy automation

With our coding-free, smart Automation Engine, you can automate laborious tasks across all your sales channels and inventory locations with just a few clicks, from complex order fulfillment and multiple warehouses to shipping and accounting. This means you can process more orders without extra staff and eliminate costly human errors. In fact, on average, Brightpearl customers save two months a year compared to manual processes.

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2. Smart demand forecasting and inventory planning

Accurately forecast demand based on your sales history and seasonality. And get data-driven replenishment recommendations to meet demand. No more overselling that leads to unhappy customers or under-stocking that causes lost revenue.

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3. Plug & play integrations

Connect to leading e-commerce platforms, marketplaces and lots of accounting, shipping and 3PL options. Between these connectors and the fast, open API you can be up and running in minutes meaning you’ll never have to wait months or even years for a custom integration again.

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4. End-to-end services

We go above and beyond a software provider for our customers. Our retail back office experts will be at your side every step of the way from implementation and onboarding training to ongoing consulting and 24/7 support. It means you can focus on your plan for growth, instead of wasting time fixing clunky workflows.


What different types of Inventory Management System are there?

Brightpearl not the right solution for you at the moment?

No problem, you also have other types of systems on the market to help you manage inventory based on your current needs. Here are the major types of inventory management systems or alternatives.

Manual, low-tech inventory management

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.

Spreadsheets

Many businesses have moved away from manual stock-taking. There are plenty, however, who haven’t yet embraced the dedicated software solution that is an inventory management system. The system which these individuals use involves tracking stock and more via spreadsheet.

A program like Excel can be excellent for managing inventory at a basic level. A professional with a good affinity with spreadsheets can create a decent system. Stock, value, sales figures, and more can all get tracked on one straightforward document. Modern file-sharing tools, too, can form a part of these systems. They mean that anyone in an organization that needs to can access the relevant document.

The issue of human error is still a significant downside of spreadsheet-based systems. Enter incorrect figures at any stage, and the mistake can snowball. What’s more, spreadsheets can’t account for the complexity of many businesses. Plenty of firms have multiple sales channels or warehouses. In those cases, an Excel document will swiftly get complex and unwieldy.

In other words, relying on an inventory management system through an Excel spreadsheet (or set of spreadsheets) isn’t generally worth it in the long run. That’s especially true for businesses looking for a scalable solution.

Standalone inventory management systems

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

Sadly once retailers dig a little deeper or worse start using these systems, they find that the quality of these features is lacking leading to a system that can only cope with low order numbers stifling your potential growth.

Reporting is key to providing data-driven decisions allowing you to focus on the most important products & channels for your business, driving growth. Sadly retailers find insights from these standalone systems lacking meaning they sometimes have to resort to using Excel.

Standalone systems often struggle with automating more complex orders like multi-location & dropshipping. These are also the most time-consuming to action manually, meaning you’re not saving the time that you would have expected which could have been spent focusing on growing your business.

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

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%).

What you need to check when choosing an Inventory Management System

The aim of your inventory management system is to help you keep track of your stock in the most seamless, efficient way. That’s why you’ve got to make sure any prospective system has all the features you need to manage your inventory, but what are those?

We’re going to be breaking down all the elements of an excellent inventory management system, so you can cross-reference them with any system you’re considering.

From easily scannable inventory summaries (like the one pictured below in Brightpearl) to top-class customer support, some features and functionalities simply set some inventory management systems apart from the competition. With that said, let’s explore the items you need to check when you’re trying to determine whether a given system is the one for you.

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Implementation

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.

Customer support

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.

Features

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.


Best alternative Inventory Management Systems for small business

For those of you wondering which is the best inventory management system for small business, we’ve compiled a list of five solid choices you might opt for.

We’d be remiss not to mention that, of course, Brightpearl is always an option. With advanced reporting, inventory management, and automation features (among others), Brightpearl stands out as an excellent choice for anyone looking for the ideal inventory management system.

If Brightpearl is not the right solution for you, though, here are some other systems you could consider:

1. Linnworks

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.

2. Fishbowl

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.

3. Quickbooks Commerce

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.

4. Cin7

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.

5. NetSuite

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.


What is inventory management?

But hold on, let’s not get ahead of ourselves. If you’re in the process of just starting out in retail or wholesale, you may be asking yourself “What is inventory management?” or “What is inventory control?”

Effective inventory management and inventory control are one in the same – and the definition is pretty simple to understand.

Inventory management refers to the process by which you track the amount of product you have on your warehouse shelf, in store or sitting with other retailers and distributors. This enables you to succeed in having the right number of units in the right place, at the right time and for the right price.

When effectively tracking and controlling your physical inventory, you’ll know how many of each item you have, when you might be running low on products and whether you should replenish that item in order to keep selling it.

And as a busy business owner, you should be able to do all of this at a glance. This enables you to make good purchasing decisions quickly and easily. It’s where having the correct sales and inventory management system comes in, too.

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What is an Inventory Management System?

You’ve now got a robust understanding of the basics of inventory management and how they’re part and parcel of your day-to-day operations. It’s all about tracking stock, supplies, and sales. In short, everything that impacts the resources you have at hand.

Inventory management systems are your means of organizing all the elements that go into inventory management. It’s the process by which you track goods from one end to the other along your supply chain. Ensuring throughout that you know what you have, where it is, and how to manage it.

There are many types of solutions. No one option will suit every business. Each organization has its own needs and principals. In general, though, automated inventory systems fall into two categories:

  • Periodic Inventory Management Systems
  • Perpetual Inventory Management Systems

Periodic inventory management systems

This is what is probably best termed as ‘old-fashioned’ inventory management. In fact, the name ‘stock-taking’ is perhaps a better descriptor. Companies count their stock at consistent but comparatively long intervals.

A typical periodic system might see a firm perform a stock take every three or six months. At that time, staff will check warehouses or storerooms, and count the units of inventory on hand. They will typically also calculate the financial value of the stock, as well as raw materials on-site.

At the point of each stocktake, an organization can check that inventory levels make sense. Any decrease in inventory would need to match up with sales figures or wastage. This is the only way to spot any discrepancies that could be damaging to the bottom line.

Periodic inventory management is far from ideal. It’s generally only suitable for the smallest of retailers. It’s only firms that hold and sell minimal volumes of inventory that can get away with a periodic approach. For other firms, such an approach makes it far too easy for costly errors to arise regularly.

Failing to track stock continually, for instance, can allow either overstocking or understocking. Both of these occurrences are hugely damaging to a business. Overstocking means you have valuable inventory sitting idle. You’re also wasting critical warehousing space on that slow-moving stock.

Understocking is just as detrimental to operations. When you don’t have enough inventory, you must refuse orders, or worse, fail to fulfill all the orders you do accept. Having to take either of those avenues will hurt your reputation with customers.

There are also financial and reporting downsides to choosing periodic inventory management. This handy guide to inventory management and accounting can teach you all you need to know for both periodic and perpetual systems. Speaking of which.

Perpetual inventory management systems

The other principal type of inventory tracking solutions are the perpetual variety. With perpetual systems, everything related to a firm’s inventory and supply chain gets tracked in real-time. Stock levels and associated reports get updated with every sale, delivery, or breakage.

Most retailers use a perpetual inventory management system of some kind. These systems have a raft of advantages over the periodic alternative. In general, perpetual systems allow a higher level of accuracy. That makes for better-informed future planning.


Workflows of Inventory Management Systems

Inventory management systems help you take care of lots of workflows. The exact nature of those workflows depend on how you’re using your inventory management system, and they’ll vary depending on whether your software is designed for things like multichannel inventory management.

We’re now going to take a closer look at four of the most important workflows that are handled by just about any inventory management system:

Arrangement of all inventory items

Your inventory items aren’t always going to be in the most efficient places. Unless you’re using the right inventory management systems, that is.

Part of these systems’ workflows involves arranging every item in the inventory as necessary, on a regular basis. When something needs to be moved, the system should automatically take care of it. Also, whenever the system detects items in places where they shouldn’t be, it should respond appropriately and in a timely fashion.

Setting transfer orders within the company

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.

Inventory adjustment

Sometimes you’ve got too much stock; other times, you simply don’t have enough. Either instance is troublesome, and both can create more problems down the line if they’re not dealt with quickly.

Thankfully, inventory management systems are there to mitigate precisely these kinds of situations. With the right analytics and forecasting features, the right systems can keep you from suffering the issues of over- and understocking.

Cycle counting

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.


Electronic inventory management systems explained

An electronic inventory management system is essentially a digitized counterpart to more traditional inventory management solutions. Examples would include the standalone software and ERPs mentioned above.
In other words, an electronic management system is functionally the same thing as purpose-built inventory management software, or a web-based inventory management system.
A great electronic management system should be both easy to use and feature-rich. It should be intuitively structured, so no one has to wonder what to click on to get their desired results.


An aside: Why implementing a warehouse Inventory Management System is important

Speaking of warehouses, they’re indispensable for any retail business, e-commerce and offline alike.

In-person businesses can’t store all their stock in their shops. For one thing, it would require them to have a lot of space. There’s also the issue of distributing stock across multiple shops. What happens when Shop A has a surplus of something Shop B needs to replenish, but it’s difficult to transport stock between the two sites?

As for e-commerce stores, they need warehouses as a point between the customers and suppliers. After a product is readied, it gets put into a warehouse, from where it can then be shipped to anyone that places an order.

So, warehouses are incredibly important. But what about warehouse inventory management systems?

To put it simply, warehouses are disorganized without them. These systems ensure every bit of stock in every warehouse is accounted for, and that it’s all in the right place. That means these systems are critical to anyone hoping to run their retail business effectively.

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11 Benefits of effective inventory management

Keeping track of your inventory is fundamental to your success in retail. At the most basic level, after all, your job is to supply the products to meet consumer demand. You can’t do that without effective inventory management.

Listed on the right are the top eleven benefits of effective inventory management that choosing the right system, as detailed above, can deliver your business. They all combine to explain the importance of accurate real-time tracking of stock, and can be easily achieved by using dedicated inventory management software.

1. Fewer missed sales

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.

2. Better invested cash

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.

3. More accurate reports

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.

4. Early problem detection

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.

5. Happier customers

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.

6. Easy to reorder

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.

7. Theft and loss reduction

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.

8. Trusted information systems

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.

9. Reduced warehouse costs

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.

10. Cycle counts and end of year efficiency

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.

11. Peak season efficiency

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.


Techniques for building an efficient Inventory Management System

Accurate inventory management and inventory control hinge on best practice and using effective inventory management techniques. To help, consider the following 12 inventory and warehouse management best practices and activities.

1. Cycle counts

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.

2. FIFO

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.

At Brightpearl, we use FIFO – just like many other inventory management systems – as we feel 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.

3. ABC analysis

The idea behind the ABC analysis is to effectively prioritize your attention and resources 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.

Use these groups to help categorize your finished products and then you can ensure your inventory management practices revolve around counting those items in Group A first, followed by Group B and C respectively.

4. Just in Time (JIT)

Although Just in Time ordering, or JIT, is still considered to be a risky strategy for some, it can be a great way of offsetting the risks associated with inventory management to your manufacturer or supplier instead.

With JIT in place, you’ll receive goods just before they need to be shipped or sold. This is helpful to small businesses that perhaps don’t have as much cash flow, warehouse space, or monetary capital as larger ones. Instead of tying up cash in inventory, you can instead invest that money on attracting more sales in the first place.

For this inventory management technique to work, you’ll need to have a healthy and trustworthy relationship with your supplier, or you’ll risk disappointing customers if goods are slow to dispatch.

For more info about Just in Time ordering, check out this in-depth guide written by e-commerce fulfillment company, James and James.

5. Surplus inventory and dead stock

Surplus inventory, also referred to as excess inventory, can result in dead stock if you don’t have an effective inventory management strategy in place in order to adjust your order quantity and shift these products in order to prevent it from happening again.

Dead stock, or dead inventory, is used to describe products that were never sold or used by consumers before being removed from the sales process, perhaps because they’re outdated or don’t have the functionality customers want. Read on for some ideas on what you can do with both dead stock and excess inventory.

Cross-merchandising is a great strategy to help increase sales of your surplus inventory and slow-moving items, allowing you to shift these products quicker.

Likewise, adapting your multichannel strategy can be a great driver in shifting excess inventory. Perhaps it’s as simple as selling these goods on marketplaces like eBay and Amazon, or even using social media marketplaces on Facebook and Instagram to sell these items to those who may not yet be aware of your brand.

Another idea for managing surplus inventory is to donate it, which according to Global Trade Magazine, provides “generous tax benefits aimed at C Corporations that donate goods to charity. According to Section 170(e) (3) of the Internal Revenue Code, C Corporations that donate their inventory to qualified nonprofits can receive a tax deduction of up to twice the cost of the donated products.”

 

6. Par levels

Par levels are the minimum quantities you wish to have in stock for each product. If your inventory counts go below that level, you know that you need to reorder that product.

Setting your par levels (for both on-premise and in-transit stock) provides structure and a method of prioritization within your reordering process and is an excellent way of keeping up with demand.

7. Safety stock

Safety stock is the extra inventory you hold in your warehouse to reduce the risk of overselling due to peaks in supply and demand.

But you’ll need to calculate what the optimal level of safety stock is – enough that you don’t oversell on fast-moving inventory, but not so much that you’re tying up too much cash in your warehouse.

Safety Stock = 1.65 x Square Root of Lead Demand

Find out more details about the safety stock calculation

8. Contingency planning

Your e-commerce business relies on its customers and how great their experience is, which is why an element of contingency planning should always be a top priority. As retail trends are constantly changing, it’s important to keep a vigilant eye on your inventory and warehouse management system in order to be prepared for any scenario.

Particularly related to e-commerce inventory management, you’ll need to have plans in place for each of these example scenarios:

These are just some of the most common scenarios facing e-commerce businesses today. To avoid a potential loss in revenue or a hoard of angry customers, you’ll need to ensure you have a viable plan of action for each of these situations and any others you think your business might face in the future.

9. Consignment inventory

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?
10. Dropshipping

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.

11. KPI analysis

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:

12. Returned inventory

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?


Integrating an Inventory Management System with your retail tech stack

We’ve touched upon the importance of integration a couple of times already. Standalone systems – for any business process or area – are not the way forward. At least not for the majority of businesses. Having disparate solutions leads to data silos. They put up barriers to your firm working as efficiently as possible.

There is a raft of options when it comes to software and tech tools to support your business. This retail tech stack report should give you some insight. When choosing any addition to your retail tech stack, ease of integration should be a key concern.

Fortunately, it’s straightforward to unify inventory management systems with your other solutions. The best systems and tools now get built with integration in mind. They boast high-performance integrations with many third-party apps and services. They include examples such as Amazon, Shopify, and more.

The highest-end solutions, too, are comprehensive retail platforms. They don’t only provide dedicated inventory management; they offer that function and more. They can streamline warehousing, back office, accounting, and plenty of other vital processes.


What is a retail Inventory Management System?

An inventory management system for retail is a tool that’s designed to make it easier for you to handle everything relating to your retail inventory. It’s the platform you use to manage each aspect of your stock such that your business is able to run as efficiently as possible.

It might be tempting to think an e-commerce business wouldn’t have as much need for a tool designed specifically with inventory in mind. After all, e-commerce companies don’t have in-person shops, so they’d have less inventory to worry about, right?

Wrong, actually. E-commerce stores still have to stay on top of everything that happens with their products. In some cases, e-commerce businesses will actually have more stock than their in-person counterparts, especially when they’re multinational businesses.

With that in mind, let’s explore what makes Brightpearl an excellent choice for your e-commerce inventory management system regardless of the platform your shop is primarily based on:

Why Brightpearl Inventory Management System for Shopify?

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.

Why Brightpearl Inventory Management System for Magento?

Whether you’re looking to use Magento 1 or Magento 2, Brightpearl has you covered.

Thanks to Brightpearl’s automation, you can join disparate processes together through the power of AI. That means reducing the chance for human error, increasing the speed at which you complete workflows, and freeing up more time to focus on tasks that can’t be automated.

With Brightpearl for Magento, you can more easily manage your costs as well. This makes it easier to boost your bottom line by ensuring you only spend as much as you need to.

If you’re hoping to find a perpetual inventory system that caters to your needs as a Magento user, Brightpearl is the solution for you.

Why Brightpearl Inventory Management System for Walmart?

If you’re already using Walmart as your retail platform, you’ll be well aware that it’s the world’s largest retailer.

Selling on such a huge platform means you’ll want to go the extra mile to stand out. And what better way is there to set yourself apart from the competition than to always impress customers at every step?

Brightpearl for Walmart helps you do just that.

By focusing on always providing you with accurate, up to date information (and corresponding predictions), Brightpearl helps you guarantee that you’re always prepared to meet customer demands.

Brightpearl gets rid of human error through automation, letting you trust in the information it provides you with in complete confidence.

Why Brightpearl Inventory Management System for eBay?

Fulfilling eBay orders and keeping up with the demand your store sees on eBay is a challenge all its own, and it’s a challenge that Brightpearl makes easier.

Thanks to Brightpearl, you can manage your full inventory from the same platform you use to manage your sales channels. The end result is a fantastic experience for both you and your customers. And that can only lead to better reviews, which in turn bring in more business in the immediate future.


What’s the cost of an Inventory Management System?

The cost of inventory management systems varies depending on the specific system in question. Most systems will charge on a monthly basis, though some offer discounts if you pay an annual fee rather than a monthly one.

Another matter that complicates the cost of an inventory management system is the fact that each user’s needs are unique. That means that anyone using an inventory management system will have different requirements for it, which in turn can lead to paying for different features. With some providers, those features are priced individually (or in bundles), so it’s difficult to give a straight-up, one-size fits-all answer.

However, this only means that the pricing is flexible.

If you’re interested in discovering how much your ideal inventory management system would cost you, it’s worth getting a quote at Brightpearl. Simply tell us what you need, and we’ll be able to give you a clearer idea of how much you should expect to budget to meet those needs.


Wrapping up; How an Inventory Management System could be vital to your success

When you boil it down, retail is about having the correct goods to sell at the right time. There are few things more fundamental to the sector, therefore, than inventory management. That’s why you need the right inventory management system to support you in your daily work within the retail sector.

Inventory management systems give you the support you need to ensure your stock is always in the right place at the right time—and that you’ve ordered any item in the right quantity. That’s why excellent inventory management systems like Brightpearl come with a built-in forecasting feature that gives you an accurate idea of the future popularity of any given item in your stock.

In short, inventory management systems are there to make your inventory handling as seamless as possible. This makes them vital to your success.

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