Inventory management software is
a software system for tracking inventory levels,
orders, sales and deliveries.[1] It can also be used in
the manufacturing industry to create a work order, bill of
materials and other production-related documents. Companies use inventory
management software to avoid product overstock and outages. It is a
tool for organizing inventory data that before was generally stored
in hard-copy form or in spreadsheets.
Features
Inventory management software is
made up of several key components working together to create a cohesive
inventory of many organizations' systems. These features include:
Reorder Point
Should inventory reach a specific
threshold, a company's inventory management system can be programmed to tell
managers to reorder that product. This helps companies avoid running out of
products or tying up too much capital in inventory.
Asset tracking
When a product is in a warehouse or
store, it can be tracked via its barcode and/or other tracking
criteria, such as serial number, lot number or revision number. Systems.
for Business, Encyclopedia of Business, 2nd ed. Nowadays, inventory management
software often utilizes barcode, radio-frequency identification (RFID),
and/or wireless tracking technology.
Service management
Companies that are primarily
service-oriented rather than product-oriented can use inventory management
software to track the cost of the materials they use to provide services, such
as cleaning supplies. This way, they can attach prices to their services that
reflect the total cost of performing them.
Product identification
Barcodes are often the means
whereby data on products and orders are inputted into inventory management
software. A barcode reader is used to read barcodes and look up
information on the products they represent. Radio-frequency identification (RFID)
tags and wireless methods of product identification are also growing
in popularity.
Modern inventory software programs may use QR codes or NFC tags to identify
inventory items and smartphones as scanners.[citation needed] This method
provides an option for businesses to track inventory using barcode scanning
without a need to purchase expensive scanning hardware.[citation needed]
Inventory optimization
A fully automated demand
forecasting and inventory optimization system to attain key inventory
optimization metrics such as:
Reorder point: the number of
units that should trigger a replenishment order[citation needed]
Order quantity: the number of
units that should be reordered, based on the reorder point, stock on hand and
stock on order[citation needed]
Lead demand: the number of units
that will be sold during the lead time[citation needed]
Stock cover: the number of days
left before a stockout if no reorder is made[citation needed]
Accuracy: the expected accuracy
of the forecasts[citation needed]
History
The Universal Product Code (UPC)
was adopted by the grocery industry in April 1973 as the standard barcode for
all grocers, though it was not introduced at retailing locations
until 1974.[2] This helped drive down costs for inventory management
because retailers in the United States and Canada didn't have to purchase
multiple barcode readers to scan competing barcodes. There was now one primary
barcode for grocers and other retailers to buy one type of reader for.
In the early 1980s, personal computers began to be popular.[3] This
further pushed down the cost of barcodes and readers. It also allowed the first
versions of inventory management software to be put into place. One of the
biggest hurdles in selling readers and barcodes to retailers was the fact that
they didn't have a place to store the information they scanned. As computers
became more common and affordable, this hurdle was overcome. Once barcodes and
inventory management programs started spreading through grocery stores,
inventory management by hand became less practical. Writing inventory data by
hand on paper was replaced by scanning products and inputting information into
a computer by hand.
Starting in the early 2000s, inventory management software progressed to the
point where businesspeople no longer needed to input data by hand but could
instantly update their database with barcode readers.
Also, the existence of cloud based business software and their
increasing adoption by businesses mark a new era for inventory management
software.[citation needed] Now they usually allow integrations with other
business backend processes, like accounting and online sales.[citation
needed]
Purpose
Companies often use inventory
management software to reduce their carrying costs.[4] The software is
used to track products and parts as they are transported from a vendor to a
warehouse, between warehouses, and finally to a retail location or directly to
a customer.
Inventory management software is used for a variety of purposes, including:
Maintaining a balance between too
much and too little inventory.
Tracking inventory as it is
transported between locations.
Receiving items into a warehouse
or other location.
Picking, packing and shipping items
from a warehouse.
Keeping track of product sales
and inventory levels.
Cutting down on product obsolescence and
spoilage.
Avoiding missing out on sales due
to out-of-stock situations.
Manufacturing uses
Manufacturers primarily use
inventory management software to create work orders and bills of materials.
This facilitates the manufacturing process by helping manufacturers efficiently
assemble the tools and parts they need to perform specific tasks. For more
complex manufacturing jobs, manufacturers can create multilevel work orders and
bills of materials, which have a timeline of processes that need to happen in
the proper order to build a final product. Other work orders that can be
created using inventory management software include reverse work orders and
auto work orders. Manufacturers also use inventory management software for
tracking assets, receiving new inventory and additional tasks businesses in
other industries use it for.
Advantages of ERP inventory
management software
There are several advantages to
using inventory management software in a business setting.
Cost savings
A company's inventory represents
one of its largest investments, along with its workforce and
locations. Inventory management software helps companies cut expenses by
minimizing the amount of unnecessary parts and products in storage. It
also helps companies keep lost sales to a minimum by having enough stock on
hand to meet demand.
Increased efficiency
Inventory management software
often allows for automation of many inventory-related tasks. For example,
software can automatically collect data, conduct calculations, and create
records. This not only results in time savings, cost savings, but also
increases business efficiency.
Warehouse organization
As businesses move away from pen
and paper processes to automated solutions, visibility becomes a key factor in
inventory management.
Inventory management software can
help distributors, wholesalers, manufacturers and retailers optimize
their warehouses. If certain products are often sold together or are more
popular than others, those products can be grouped together or placed near the
delivery area to speed up the process of picking.
By 2018, 66% of warehouses "are poised to undergo a seismic shift, moving
from still prevalent pen and paper processes to automated and mechanized
inventory solutions. With these new automated processes, cycle counts will be
performed more often and with less effort, increasing inventory visibility, and
leading to more accurate fulfillment, fewer out of stock situations and fewer
lost sales. More confidence in inventory accuracy will lead to a new focus on
optimizing mix, expanding a selection and accelerating inventory turns."[5]
Updated data
Up-to-date, real-time data on
inventory conditions and levels is another advantage inventory management
software gives companies. Company executives can usually access the software
through a mobile device, laptop or PC to check current inventory
numbers. This automatic updating of inventory records allows businesses to make
informed decisions.[6]
Data security
With the aid of restricted user
rights, company managers can allow many employees to assist in inventory
management. They can grant employees enough information access to receive
products, make orders, transfer products and do other tasks without compromising
company security. This can speed up the inventory management process and
save managers' time.
Insight into trends
Tracking where products are
stocked, which suppliers they come from, and the length of time they are stored
is made possible with inventory management software. By analysing such data,
companies can control inventory levels and maximize the use of warehouse space.
Furthermore, firms are more prepared for the demands and supplies of the
market, especially during special circumstances such as a peak season on a
particular month. Through the reports generated by the inventory management
software, firms are also able to gather important data that may be put in a
model for it to be analyzed.[citation needed]
Disadvantages of ERP inventory
management software
The main disadvantages of
inventory management software are its cost and complexity.
Expense
Cost can be a major disadvantage
of inventory management software. Many large companies use an ERP as inventory
management software, but small businesses can find it difficult to afford it.
Barcode readers and other hardware can compound this problem by adding even
more cost to companies. The advantage of allowing multiple employees to perform
inventory management tasks is tempered by the cost of additional barcode
readers. Use of smartphones as QR code readers has been a way that smaller
companies avoid the high expense of custom hardware for inventory management.
Complexity
Inventory management software is
not necessarily simple or easy to learn. A company's management team must
dedicate a certain amount of time to learning a new system, including both
software and hardware, in order to put it to use. Most inventory management
software includes training manuals and other information available to
users. Despite its apparent complexity, inventory management software offers a
degree of stability to companies. For example, if an IT employee in charge of
the system leaves the company, a replacement can be comparatively inexpensive
to train compared to if the company used multiple programs to store inventory
data.
Benefits of cloud inventory
management software
The main benefits of a cloud
inventory management software include:
Real-time tracking of inventory
For startups and SMBs, tracking
inventory in real time is very important. Not only can business owners track
and collect data but also generate reports. At the same time, entrepreneurs can
access cloud-based inventory data from a wide range of internet-enabled
devices, including smartphones, tablets, laptops, as well as traditional
desktop PCs. In addition, users do not have to be inside business premises to
use web-based inventory program and can access the inventory software while on
the road.
Cut down hardware expenses
Because the software resides in
the cloud, business owners do not have to purchase and maintain expensive
hardware. Instead, SMBs and startups can direct capital and profits towards
expanding the business to reach a wider audience. Cloud-based solutions also
eliminate the need to hire a large IT workforce. The service provider will take
care of maintaining the inventory software.
Fast deployment
Deploying web based inventory
software is quite easy. All business owners have to do is sign up for a monthly
or yearly subscription and start using the inventory management software via
the internet. Such flexibility allows businesses to scale up relatively quickly
without spending a large amount of money.
Easy integration
Cloud inventory management
software allows business owners to integrate with their existing systems with
ease. For example, business owners can integrate the inventory software with
their eCommerce store or cloud-based accounting software. The rise in popularity
of 3rd party marketplaces, such as Amazon, eBay and Shopify,
prompted cloud-based inventory management companies to include the integration
of such sites with the rest of a business owner's retail business, allowing one
to view and control stock across all channels.[7][8]
Enhanced Efficiency
Cloud inventory systems increase
efficiency in a number of ways. One is real-time inventory monitoring. A single
change can replicate itself company-wide instantaneously. As a result,
businesses can have greater confidence in the accuracy of the information in
the system, and management can more easily track the flow of supplies and
products – and generate reports. In addition, cloud-based solutions offer
greater accessibility.
Improved Coordination
Cloud inventory programs also
allow departments within a company to work together more efficiently.
Department A can pull information about Department B's inventory directly from
the software without needing to contact Department B's staff for the information.
This inter-departmental communication also makes it easier to know when to
restock and which customer orders have been shipped, etc. Operations can run
more smoothly and efficiently, enhancing customer experience. Accurate
inventory information can also have a huge impact on a company's bottom line.
It allows you to see where the bottlenecks and workflow issues are – and to
calculate break-even points as well as profit margins.
Disadvantages of cloud inventory
management software
Security and privacy
Using the cloud means that data
is managed by a third party provider and there can be a risk of data being
accessed by unauthorized users.
Dependency
Since maintenance is managed by
the vendor, users are essentially fully dependent on the provider.
Decreased flexibility
Depending on the cloud service
provider, system and software upgrades will be performed based on their
schedule, hence businesses may experience some limitations in flexibility in
the process.
Integration
Not all on-premises systems or
service providers can be synced with the cloud software used.
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