If you’re running a product business and using Xero for your accounting, you’ll need to implement some form of inventory management. While the platform offers some inventory features of its own, many businesses will require something with greater functionality.
In this article, we break down native Xero inventory management and compare it with using an integrated Xero inventory software system.
An introduction to Xero inventory management
Inventory management is the process of managing all your materials, parts, assemblies, and finished products in an interconnected way that minimises costs and waste while maximising efficiency.
Xero has several in-built features to help you keep track of stock items in real-time.
Xero’s native inventory features include:
- Track up to 4000 stock items
- Enter and review stock quantities
- Add items to an invoice
You can use this information in conjunction with Xero’s regular accounting suite to compare different financial metrics.
This will help you determine whether your products are selling well, poorly, or somewhere in between.
How to track inventory in Xero:
- Perform a physical count of your current stock
- Select an opening balance
- Import your inventory into Xero
- Specify your opening balance
See a detailed version of this process on Xero’s website.
For young businesses just starting out or those only dealing with a handful of SKUs, Xero’s native inventory management features may serve all your needs. For larger or more complex organisations, an integrated Xero add-on may be required.
The benefits of tracking inventory with Xero
Tracking inventory natively within Xero offers several benefits, particularly when upgrading from paper or spreadsheet systems.
Three main benefits of using Xero for inventory management include:
- Simplicity: It’s easier to use than a spreadsheet, with automated functions such as tracking real-time stock levels, and calculating COGS and profitability.
- Centrality: Xero keeps all of your inventory and financial information in one place, making it easy to synchronise bookkeeping with your inventory records.
- Improved revenue: It can help you improve your revenue and avoid over- or under-stocking by granting you a better understanding of your flow of goods, as well as your most or least popular products.
However, one of Xero’s most valuable features is the way it integrates with other software.
It’s possible and relatively easy to expand on the benefits above with other apps from the Xero app store. As Xero is primarily an accounting tool, integrations allow business owners to utilise the best tools for each function of the business.
The limitations of tracking inventory with Xero
As we’ve touched on, some businesses will find Xero’s inventory capabilities limiting.
Three major limitations of using Xero for inventory management include:
- Inventory ceiling: It’s not suitable for anyone with more than 4,000 inventory items to track (now, or in the future).
- Finished goods only: Xero can’t track raw materials or works-in-progress, making it unsuitable for manufacturers or those assembling goods and tracking the components. It only tracks finished items.
- A limited set of functions: It lacks the expanded functionality often found in dedicated inventory management platforms, such as integration with barcode scanners to make inventory tracking less manual.
Xero is an incredibly versatile tool. You can quickly customise it to better suit your organisation’s needs through specific, industry-relevant add-ons.
Adding an inventory management app gives you the full power of a dedicated inventory platform, and all the smart features contained within, in combination with the accounting features which Xero does best.
Let’s dive deeper into some useful add-ons for Xero.
Xero inventory software add-ons
If you require extra functionality or simply wish to optimise your inventory management efficiency with the help of integrations, the Xero app store offers many solutions.
Let’s take a look at some of the most useful Xero apps for managing inventory.
1. Inventory management software
Xero inventory software apps are the most obvious place to start.
With a Xero inventory integration, businesses can reap the benefits of a dedicated and multifunctional inventory tool while maintaining that all-important centralisation of data across all areas of the company.
Xero inventory software is designed to provide an end-to-end solution to inventory control and order fulfilment. A robust inventory management suite allows you to track goods or raw materials as they come in through the supply chain, all the way through your production process, and out the other side into shipping.
Features to look for in Xero inventory software:
- Real-time inventory tracking
- Bill of Materials creation and management
- Assembly building
- Batch and serial number tracking
- Supplier management
- Purchase order management
- Sales quote and customer order management
- Barcode scanner functionalities
- Integrations for your existing accounting, shipping, ecommerce, analytics, and POS systems
- Inventory forecasting
- Reporting and analytics
- Excellent vendor customer service and onboarding
- Work-in-progress tracking
Consider your industry and business model – there may be unique features that you’ll also need to vet for.
Unleashed Xero inventory software
Unleashed is the preferred inventory choice for many businesses running their books on Xero.
Along with a reputation for amazing customer support and a complete range of functionalities, Unleashed naturally integrates with Xero for fast and simple data centralisation.
For manufacturers and producers, Unleashed automates many of the tedious manual processes involved in managing stock as it moves from raw materials to works-in-progress to finished products.
Other benefits of using Unleashed Xero inventory software:
- Full visibility over products. Batch and serial number tracking afford users complete traceability across every step of the inventory life cycle.
- Seamless integrations. Xero isn’t the only integration available – you can easily connect Unleashed to your shipping system and ecommerce channels to ensure accurate data across the business.
- Powerful upgrade options. From your very own B2B store to business intelligence reporting and customer demand forecasting, Unleashed reduces the number of tools you’ll need to use with highly efficient in-app upgrades.
To learn more about the features of Unleashed, check out our product page.
2. POS and commerce apps
Inventory management affects and is affected by many areas of a business. To gain complete control of your inventory processes, consider tools that will assist in the sales and commerce portion as well.
One of the keys to getting inventory right is to ensure your real-time picture of stock levels is always accurate. If you’ve got barcode scanners, well-trained staff, and a good inventory app, this is easily accomplished from a receiving perspective.
But as customers purchase products, those levels need to shrink again. If you’re shipping from multiple warehouses or selling across different sales channels, this can quickly become complicated.
Integrating a point-of-sale (POS) system and ecommerce channel can simplify this process.
Features to look for in a commerce or POS system:
- Synchronised sales orders
- Perpetual stock updates
- Real-time order fulfilment statuses
- Synchronised customer details
- Synchronised shipping information
If you’re already set up on a specific ecommerce platform that doesn’t integrate with Xero or the inventory management software of your choice, consider the costs and benefits of switching platforms versus using third-party API integrations to connect your disparate systems.
Xero POS & commerce software
The Xero app store is full of great (and some not-so-great) apps for sales management.
Here are some quick links:
Shopify and Amazon are two of the most popular ecommerce channels for businesses wanting to expand their sales online. However, at the time of this writing, neither integrate naturally with Xero. The same can be said for Magento.
For sellers already using or intending to use these sales channels, you’ll need to search the Xero store for a third-party connector app. Popular solutions include A2X and Link My Books.
B2B ecommerce store
B2B businesses already operating with a combined Unleashed/Xero platform can expand into ecommerce without needing an additional brand name in their software ecosystem.
Switching on the Unleashed B2B ecommerce store allows you to sell directly to your business customers through a seamless online portal without losing access to all the core features and functionalities of the Unleashed inventory system.
That means you can start selling wholesale directly within Unleashed and retain the data integration with Xero.
3. Xero shipping and logistics apps
Shipping is the last piece of the order-fulfilment puzzle. It directly impacts inventory, and therefore inventory control.
An efficient Xero shipping app allows you to better communicate with local carriers, track customer orders as they travel around the world, gain insight into your shipping costs, and accept returns and damaged goods easily without ruining your data.
Features to look for in a shipping and logistics app
- Visibility over carrier charges
- Built-in cost estimates
- Shipping and tracking information that integrates with sales
- Automated label printing
- Automated shipping rules based on key factors like consignment weight and order value
- Can work across multiple warehouses
Xero shipping and logistics software
The Xero app store hosts a range of tools to easily manage your outgoing goods.
Here are some quick links:
Shop around and read up on the unique features of different apps to find the software that’s right for your business. Factors such as cost, geographic location, and integration options are important to consider when deciding on options.
Xero inventory software: Which is right for you?
If you’re a small retailer selling finished products in low volume, Xero may be suitable for your organisation.
It’s a definite upgrade from a spreadsheets-based system, allowing real-time inventory tracking and faster data analysis.
Because you don’t turn over too many items each year, you can easily handle importing your inventory list into Xero and keeping an eye on it from there.
Wholesalers or distributors may also be able to work with Xero if they’re small enough, but as soon as you need to track higher quantities or your business grows more complex, you’ll probably out-grow the platform. Manufacturers and anyone else needing to track components and work-in-progress will also likely find Xero unsuitable on its own.
The good news is that when you outgrow Xero’s in-built inventory functions, add-ons like Unleashed ensure you can keep using it in conjunction with alternate software.