What is Inventory Management Software and How Does It Work?

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Inventory management software helps businesses keep track of stock and be more efficient in their daily operations. It automates tedious manual tasks that can be prone to human error, improving the accuracy of a company’s recorded inventory levels and reducing inventory carrying costs.

This article explains what inventory management software is, how it works, and how much inventory management software costs to set up and operate.

What is inventory management software?

Inventory management software is an automated software system used to streamline various stock control and order management tasks within a business. It helps companies track and manage inventory items, customer orders, and inbound deliveries to bring costs down and improve overall efficiency.

In manufacturing, inventory management software is also used to track parts, raw materials, and production documents – such as a bill of materials and work orders – through the supply chain.

How does inventory management software work?

Inventory management software works by automating critical inventory management tasks that are involved in the process of receiving, storing, and distributing physical goods. In most cases, inventory management software comes with a monthly subscription and a one-time implementation fee. It provides a return on investment for the user by reducing the labour and costs associated with carrying inventory.

inventory management software dashboard
A typical dashboard demonstrating how inventory management software works in real life.

How to use inventory management software

Here’s a quick example of how inventory management software works in a business:

  1. Acquire inventory management software: A third-party software vendor is procured based on your business’s inventory management requirements. You sign up for a monthly or annual subscription to use the software, usually after watching a demo or taking a free trial.
  2. Upload inventory information: Product details are added for each of your stocked items, including on-hand inventory levels, stock-keeping unit (SKU), storage location, and price.
  3. Upload vendor information: Supplier information – including product prices and contact details – is added to the inventory management software to enable faster purchasing.
  4. Integrate with other business software: If desired, you can integrate your inventory management software with any existing systems, such as your accounting or eCommerce systems.
  5. Receive automated reorder notifications: As inventory moves in and out of the business, the inventory management software will detect when stock needs reordering and alert your purchasing manager. The purchasing manager can then create a purchase order for the required goods and send it to your supplier.
  6. Track your inventory from the vendor to the warehouse: Your warehouse manager can track the status of a purchase order as it moves through the supply chain. When goods arrive, the warehouse team receives all or part of the purchase order in the system to automatically update the recorded stock levels.
  7. Manage customer orders: When a customer places an order, your inventory management software will tell you if the ordered goods are in stock or when to expect them, where they are located, and shipping information for the customer.
  8. Fulfill customer orders: A warehouse clerk retrieves the ordered goods and prepares them to be shipped. They confirm the goods – either manually, or by connecting the software to a barcode scanner and scanning them – then pack them into the appropriate packaging.
  9. Ship customer orders: If the inventory software has shipping management features or a shipping software integration, a shipping label may be automatically printed once all goods are confirmed.
  10. Report on inventory and sales: Using the inventory management software dashboard, your team can access sophisticated reports and insights about the health of your inventory, sales trends, and supplier reliability.
  11. Forecast inventory requirements: If you’re using an advanced inventory management system, you might have access to tools that help you forecast future sales and purchasing requirements that enable smarter decision-making and inventory planning.
  12. Automate inventory accounting: By integrating with accounting software, all the financial information recorded in your inventory system can be easily reconciled to ensure that your sales and purchasing data are accurate across the whole business.
  13. Optimise production management: For manufacturers and food and beverage producers, some inventory software can also be used to track raw materials and components through each stage of production – including the creation and management of bills of materials, assemblies, and sub-assemblies.

Bear in mind: every organisation will have specific requirements and uses for inventory software based on the type of goods they sell and their customers’ requirements.

Benefits of inventory management software

The primary benefits of inventory management software are that it increases efficiency and reduces the cost of running a product business. This is achieved by automating manual processes, increasing inventory accuracy, and providing insightful reports about the health of your business.

6 key benefits of inventory management software:

  • End-to-end inventory visibility: Track your parts and products in real time as they move travel from supplier to warehouse to customer.
  • Accurate stock control: Automatically update stock movements as they occur to prevent overstocking or stockouts. Inventory management software instantly reflects changes whenever your products are sold, relocated, or adjusted.
  • Automated manual processes: Take the stress and human error out of mundane tasks like currency conversion, pricing optimisation, and inventory forecasting.
  • Track stock across multiple warehouses: Synchronise inventory data between all your physical storage locations so you always know exactly what’s available and where it is.
  • Sell through multiple sales channels: Use your inventory management software to connect customer orders and stock information between multiple online and offline platforms.
  • Optimise purchase management: Generate purchase orders based on optimal reorder levels and auto-populate key product information in seconds.

In addition to these advantages of inventory management software, there are broader benefits to the business as well.

From a financial perspective, you can reduce the risk of cash-flow freezes by identifying the perfect amount of inventory to keep in stock at any one time. Inventory management software also helps break down your cost of goods sold so that you can better understand your profit margins and set competitive prices that maximise profitability.

Ecommerce inventory tracking software
The best inventory tracking software seamlessly integrates with other systems, such as accounting or POS.

Inventory management software features

Before deciding on an inventory management software vendor, you’ll need to figure out which features are essential for running your business. We recommend chatting with a financial advisor, your warehouse and purchasing teams, and other businesses in your sector to come up with a list of ideal inventory software characteristics.

In the meantime, here’s a generalised list of useful inventory software features:

Learn more: 21 Crucial Inventory Management Software Features

Types of inventory management software

Inventory management software comes in all shapes and sizes. Some systems are specifically designed for certain industries, functions, and business sizes. Others offer a comprehensive tool for optimising all inventory management activities.

Common types of inventory management software:

Check out the links above to learn more about a particular type of inventory management software.

Inventory management software cost

We researched over 70 inventory management software providers found on Capterra – intentionally excluding those with fewer than 20 reviews – to determine the average cost of an inventory management software system.

Our research revealed that the average monthly cost of inventory management software is USD $175 per user. You can expect to pay around USD $80 per month for a customer support package, bringing the average total up to roughly USD $255 per month per user license.

In some cases, you may also need to pay a one-off implementation fee to get set up. These can range from USD $789 to USD $10,000+ depending on various consultancy fees and bespoke set-up requirements.

Unleashed inventory management software is significantly more affordable than the average system based on the figures above. Check out our pricing page to see how subscription plans work in Unleashed.

Inventory management software demo

Watch this short demo of Unleashed to see how inventory management software works in in action:

Play Video about Inventory software demo

Inventory management software examples

There are dozens of inventory management software providers currently in the market. 

But sifting through the bad and the ugly to find a reliable choice can be a tedious endeavour. 

To make this process a little easier, we’ve put together a list of the top candidates worth considering.

Examples of popular inventory management software tools:

  • Unleashed: Unleashed (that’s us!) is a cloud-based inventory management software that’s perfect for small–medium manufacturers, retailers, and wholesalers. It comes with all the stock control, production management, and order fulfilment features you need to efficiently run your entire business.
  • NetSuite: NetSuite is an ERP platform that offers some inventory features along with a broad range of accounting, payroll, and procurement functions. It’s best suited to larger organisations with a greater risk tolerance, as implementation and ERP subscriptions can be costly and time-consuming. Learn about NetSuite alternatives here.
  • Cin7 Core: Formerly known as DEAR, Cin7 Core is an inventory management product that offers different plans depending on your preferred choice of features. While customer feedback indicates that Cin7 customer support may be less reliable than its competitors, they’re touted as an excellent choice for third-party logistics providers and their clients. Learn about Cin7 alternatives here.
  • Zoho Inventory: Zoho offers a few different business tools, including an inventory management system called Zoho Inventory. This may be the best choice for small businesses with few products and customer orders because there is a free plan available that includes a limit of 50 orders per month.
  • Brightpearl: Brightpearl is a retail operating system that also offers some inventory management features for retail and eCommerce businesses. It’s best for B2C companies that are looking to synchronise sales and inventory on the shop floor.

Remember: there’s no one-size-fits-all inventory management software.

Whatever your requirements, there’s likely a system that’s more suitable for you than others. 

Shop around and compare the costs, features, and customer support quality of different vendors before making your decision.

Inventory management software integrations

A crucial qualifier for inventory management software is how well it integrates with your existing systems. 

For example, if you’re using QuickBooks for your accounting and payroll, you’ll likely want an inventory system that can integrate and automatically sync data with QuickBooks.

Popular types of inventory management software integrations:

  • Accounting and finance integrations
  • eCommerce integrations
  • Point-of-sale (POS) integrations
  • Connector apps
  • Customer Relationship Management (CRM) integrations

If you’d like to learn more about inventory management software integrations, check out our Unleashed Integrations Hub.

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Oliver Munro
Article by Oliver Munro in collaboration with our team of specialists. Oliver's background is in inventory management and content marketing. He's visited over 50 countries, lived aboard a circus ship, and once completed a Sudoku in under 3 minutes (allegedly).

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