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What is Inventory Management? Stock & Order Systems

Sydney Kida | September 3, 2020 |

What is Inventory Management? Stock & Order Systems

What is Inventory Management?

Inventory or stock management is one of the most critical aspects of most modern businesses. In a nutshell, it’s a system for monitoring, purchasing, producing, and selling of any physical stock in your operation. It can be either for raw materials, finished goods, or both. The inventory management definition might be simple, but the process gets more complex with larger companies. There are many components involved that are both within and beyond your control. That’s why one of the most critical areas of good inventory management is proper tracking. Effectively managing your inventory is something that will make or break your business. Do it right, and you can save your operation a lot of time and money. But if you do it poorly, it can cripple even the most successful businesses. To manage inventory, you'll need an efficient inventory management system. In this post, we'll go over why you need a stock management system, the features you should look out for, and other inventory tips and techniques to help you out.

Closer Look: Inventory Management Systems

A robust inventory system is crucial for any business’s bottom line. Inventory is just like any asset in your balance sheet; you want to accurately account for it. If you fail to do this, then you risk losing money on losses or theft. You also need to make sure that you’re not spending too much money on your inventory, as this ties up capital which can be better used elsewhere in your business. Proper inventory management also helps your business perform better for your customers. Maintaining proper stock levels of your products ensures that people can always rely on you for the purchases that they need. If you’re always out of stock, your customers will see you as unreliable and may go to your competitors instead. Every business needs inventory management if the business is selling or working with a physical product. Even service businesses need to maintain an inventory of the consumables they need to deliver that service to customers. For example, a hair salon will need an accurate inventory of the shampoo, conditioner, hair dye, and other products they use daily. Where things differ is the inventory management methods used by individual businesses. Smaller businesses tend to keep it simple with nothing more than a manual count on an Excel spreadsheet. More sophisticated operations will often use technologies like barcode scanners or tagging to help monitor large volumes of stocks. There are no hard and fast rules for all industries, as each has its quirks and circumstances. A manufacturing company, for example, will need to account for production lead times in forecasting their inventory.

Common inventory management systems

There are many approaches to effective inventory management:

Manual Counting

This is the most straightforward, but also the most cumbersome method. Manual counting involves nothing more than a spreadsheet and plenty of time and patience. Aside from the effort involved, manual counting also has the risk of human errors. Small mistakes, like miscounting even one item, can snowball into more significant problems down the line. The only time you want to do manual counting is if your operation is small enough that getting a more sophisticated inventory management system doesn’t make sense financially. Manual counting is also a feasible strategy to be done every year to double-check inventory levels.

Cycle Counting

Cycle counting is an inventory management system that regularly counts only a part of your inventory. The stocks or area counted changes or cycles every time, hence the name. Usually, the fastest-moving stocks are prioritized. Cycle counting can give a good picture of your stock levels, but only if the right sample is taken. Of course, errors and inaccuracies are still problems that can affect the result.


The easiest and fastest inventory management system uses scanning techniques. One way to do this is with barcode scanning. It not only speeds up the inventory counting process, but it also reduces any errors. The data can also be updated in real-time. An upgrade to barcode scanning is the use of radio-frequency identification (RFID) tags attached to each product. Instead of needing to aim the scanner to the tag like with a barcode, RFID scanners allow identification of the tag from a distance. This speeds up the process dramatically.

Features of good inventory management system software

Because inventory management software is a crucial part of your operation, you need to be careful when picking one. Unfortunately, not all inventory software is created equal. Here are some of the basic features to look out for:
  • Location Management
Knowing how much inventory you have isn’t enough when you’re dealing with large warehouses. You also need to know where it’s located. This can get especially tedious if you have multiple warehouse locations. That’s why location management features are essential. They go beyond tracking stock location and even include suggestions on where to place items on the sales floor or in the warehouse for the most efficient use of space.
  • Stock forecasting
An essential feature every inventory management system should have is robust forecasting. The software should allow you to set critical levels for your stock and alert you if this happens. A sound system will also prevent the opposite problem — excess stock.
  • Cross-platform
For larger operations, cross-platform functionality is crucial. This allows you and your staff to access real-time stock information, whether you’re out of the office or down on the warehouse floor. Support for mobile devices is also essential, so you can rely on information getting updated much faster. You also want your inventory data to be accessible right from your point of sale (POS) system. In retail stores, this is essential for updating your stocks as they get updated in real-time.
  • Barcode scanning
Barcode scanning is a common technique used to speed up the process of adding items to your inventory management system. It semi-automates the process and eliminates potential human error from manually entering values into the system.
  • Shipping features
Proper inventory management systems have shipping features built-in. With these, you can manage the entire shipping process, including creating waybills, invoices, and packing sheets.
  • Inventory counting features
Of course, any inventory management system worth its salt should have robust counting functions. Aside from manual audits, look for advanced strategies like cycle counting, which allows you to sample a small portion of your stock to infer the count of the whole inventory.

Stock inventory management techniques and best practices

Inventory management is a vast and complex topic, and there is no one-size-fits-all solution for every business or industry. However, there are some best practices that you can implement (or at least tailor-fit) to your organization.


FIFO refers to First In, First Out, and is one of the most common and effective strategies in inventory management. As the name suggests, you take out the stocks that first entered your inventory. In effect, you’re selling off the older goods first instead of newer ones. FIFO is an acceptable approach when dealing with perishable goods like food. This ensures that products don’t stay longer than they need to in your inventory, reducing spoilage costs. In a physical inventory system, the easiest way to implement FIFO is to always add new stock at the back and get stock from the front.

The ABC Method

The ABC Method is a system for classifying your stocks depending on how fast they get disposed of or sold. You can group the fastest-moving products in Category A, for example, while slow-moving inventory is moved to Categories B and C (hence the name). The logic is that Category A products should be prioritized in terms of both warehouse layout (they need to be closer to the fulfillment area) and stock forecasts. By doing this, you effectively maintain proper stock count without overspending and disrupting your supply chain.

Do a regular audit

Even if you rely on an inventory management system that tracks stocks for you, it’s still worthwhile to manually count the inventory yourself. There might be some discrepancies that you need to look further, be it due to human or computer error. Small issues like these can grow to uncontrollable proportions if not kept in check. There are many ways to approach an inventory audit, depending on the size of your operation. The most common is to do a thorough manual count at the end of a fiscal year, and spot checking at regular intervals.

Look into dropshipping

Sometimes, the right inventory management approach is to not do it at all! This is called dropshipping, where a store sells products directly from a third-party. They don’t handle the product itself and, therefore, don’t need to track inventory. This simplified approach is a popular method used in e-commerce stores.

Hire a stock controller

If you have a larger operation, it might be best to hire a stock controller. This is a point person dedicated to maintaining an accurate inventory at all times. They will receive inventory orders , sign off on deliveries, and track your inventory traffic. 

Simplify Inventory Management With Revel

At Revel Systems, we understand the value of a great inventory management system, which is why we incorporate it into our iPad POS system . Contact us for a free demo today and see how our stock management features can help your business.