Inventory management software

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Inventory management software is a computer-based 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. It is often associated with and is similar to distribution software, as distributors that can compete with less cash tied up in inventories have a distinct advantage over their competitors.[citation needed]


Inventory management software is made up of several key components, all working together to create a cohesive inventory for many organizations' systems. These features include:

Order management[edit]

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.[2]

Asset tracking[edit]

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.[3] Nowadays, inventory management software often utilizes barcode, radio-frequency identification (RFID), and/or wireless tracking technology.[4]

Service management[edit]

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[edit]

Barcodes are often the means whereby data on products and orders is inputted into inventory management software. A barcode reader is used to read barcodes and look up information on the products they represent.[5] Radio-frequency identification (RFID) tags and wireless methods of product identification are also growing in popularity.


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.[6] 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.[7] 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.[8]

Also, the existence of cloud based business software and their increasing adoption by businesses mark a new era for inventory management software. Now they usually allow integrations with other business backend processes, like accounting and online sales.


Companies often use inventory management software to reduce their carrying costs.[9] 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[edit]

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.


There are several advantages to using inventory management software in a business setting.

Cost savings[edit]

In many cases, a company’s inventory represents one of its largest investments, along with its workforce and locations.[10] 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.[11]

Increased efficiency[edit]

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.[12][13]

Warehouse organization[edit]

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 selection and accelerating inventory turns."[14]

Updated data[edit]

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.[15]

Data security[edit]

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[edit]

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.[16]


The main disadvantages of inventory management software are its cost and complexity.


Cost can be a major disadvantage of inventory management software.[17] Many large companies use 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 smart phones as QR code readers has been a way that smaller companies avoid the high expensive of custom hardware for inventory management.[citation needed]


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.[18]

See also[edit]


  1. ^ Lesonsky, Rieva (1998). "Tracking Inventory". Entrepreneur Magazine. 
  2. ^ Lesonsky, Rieva (1998). "Inventory Control". Entrepreneur Magazine. 
  3. ^ "Inventory Control Systems". Reference for Business, Encyclopedia of Business, 2nd ed. 
  4. ^ "inventory software". Webopedia. Retrieved 23 November 2012. 
  5. ^ DeBaise, Colleen (August 10, 2010). "Technology Basics for Business". The Wall Street Journal. 
  6. ^ Dolinsky, Anton. "Inventory Management History Part Four". Almyta Systems. Retrieved August 17, 2010. 
  7. ^ Polsson, Ken. "Chronology of Personal Computers – 1981". Polsson's WebWorld. Retrieved August 17, 2010. 
  8. ^ Moskowitz, Robert. "Using Your Computer for Inventory Control". Accvision. Retrieved August 17, 2010. 
  9. ^ Piasecki, Dave. "Optimizing Economic Order Quantity – Carrying Costs". Retrieved August 17, 2010. 
  10. ^ K, Scholasticus (May 26, 2010). "Inventory Management Techniques". 
  11. ^ Brooame, Jr., J. Tol (June 1999). "The Benefits of Smart Inventory Management Software". CBS Interactive. 
  12. ^ "Advantages Of Inventory Management Software". AuthorStream. p. 7. Retrieved 23 November 2012. 
  13. ^ DesMarais, Christina (24 May 2011). "Choosing the Best Inventory Tracking Software". Retrieved 23 November 2012. 
  14. ^ Lu, Clara (March 27, 2014). "Recent Study Shows that 66% of Warehouses Plan to Expand Technology Investments by 2018". 
  15. ^ Lockard, Robert (29 November 2010). "3 Advantages of Using Inventory Management Software". Inventory System Software Blog. Retrieved 23 November 2012. 
  16. ^ "Inventory Management Software". EGA Futura. Retrieved 23 November 2012. 
  17. ^ "Inventory Control Systems". ClockWork Accounting. Retrieved August 17, 2010. 
  18. ^ "Debunking the Top Eight Myths Surrounding Small-business Warehouse Management Systems" (PDF). HighJump Software. May 2008.