All you Need to Know about Inventory Management System

Category : ERP
Blog posted by : Admin / 13 Oct, 2021


An inventory management system helps manage the products of a business as they move through various stages of the cycle, but the management of goods goes beyond just tracking their movement and quantity.


If the inventory of a company is not managed well, it will have a direct impact on sales. For a business to remain profitable, it needs to maintain an optimal level of stock.


In this blog, you will understand the basics along with the advance in technology that has transformed stock management.


Inventory Management Meaning

Inventory management is about knowing where your products are and at what stage of development they are along with the quantity.



The Basic Inventory Cycle

   Raw materials
Processing and Storage  
   Processed goods  
   Finished goods



For the simplest way to understand stock management, you can think of it as a process that answers two major questions about your products- Where in the process cycle is your product and how many are available?


What is Inventory Management Software?

An inventory management software tracks, streamlines, regulates, analyzes and controls the process of ordering raw materials, processing goods, storing and dispatching finished goods.


Stock management software does not function as a single unit but is generally supported by multiple modules of various processes that are integral to its management. A common inventory ERP module is purchase management as it facilitates the procurement of goods. Others include sales, finance, leads, site, warehouse, contractors, human resources, employee payroll and legal management.


How to Develop Inventory Management Software  

An inventory or stock management software needs to be instantly accessible by all stakeholders with a common dashboard that everyone can log into. As the business grows, the system should be able to scale up easily. The addition of users or inventory ERP module should be hassle-free and quick.


Keeping such requirements in mind, an ERP software would be the best way to go. The software can be developed on site with its own infrastructure or it can be a simple automated spreadsheet on a computer, but both have their own limitations.


ERP systems can be developed as web-based cloud services which can be offered in three ways.

Software suite- A gamut of any and every inventory ERP module needed for an enterprise to manage its stock is added. It is ideal for large and medium sized businesses.

SaaS model- Often for SaaS subscription-based models, a fee is charged monthly for a limited set of modules. You pay as you use the service, which is maintained by the provider. Ideal for medium and small businesses that have tighter budgets or fewer needs.

Mobile application- An ERP mobile app can be operated anywhere with its friendly user interface. It is the perfect add-on for employees on the move.


How Inventory Management Software Works

Warehouse management systems manage goods at the warehouse from the time of arrival to being shipped from the godown.



Inventory Management System Process Flow


For easier understanding, the process of managing a company’s products can be divided into three major stages.


Procure to Pay P2P Cycle

1.      On the Inventory Management System, assign budgets, tasks and timelines to various stages of the business process.

2.      The ERP system creates an alert if the stock is low for a particular product.

3.      Check the budget and create a Purchase Order (PO) for raw materials (manufacturer), finished products (distributor) or spare parts and other products.

4.      Compare vendors, shortlist, negotiate and place orders.

5.      Receive goods at site or warehouse. Scan documents with OCR technology for instant verification.

6.      Generate Goods Received Note (GRN), verify invoice, match PO and process payment.


Processing and Storage

7.      The received goods are segregated into various batches. Raw materials undergo further processing to create the final product.

8.      Bar codes, batch numbers or unique identifiers are uploaded to the inventory management system for easier tracking.

9.      Update and reconcile stock ledgers.

10.   Use AI technology to generate predictive analytics reports to determine rise in demand to further avoid under or over-stocking.

11.   Plan and schedule sales in accordance with marketing strategy.

12.   Create quotations and contracts for purchase requests.

13.   Manage supplier ledgers and communicate with distributors, suppliers and other internal or external stakeholders on the system.


Packing and Dispatch

14.   After sales order approval on the inventory management system, the products are sent for further processing or directly packaged to be shipped.

15.   Conduct transactions in real time, generate Goods Issue Note (GRN) and invoice for delivery.

16.   Stock ledgers are updated and PO for raw materials is placed, if needed.

17.   Keep track of hot, warm and cold products.


Objectives of Inventory Management System

Warehouse management systems are multi-faceted and affect a majority of the processes in a business. Before choosing an ERP software provider, make sure the software fulfills the following criteria:

  • Maximize sales by preventing under-stocking and overstocking. Order only the stock that is or will be in demand.

  • Avoid overselling by maintaining a check on the limited products in stock

  • Minimize costs by reducing over-stocking as dead stock costs money

  • Increase productivity as a lot of manual processes are automated, freeing up employees to work on high- priority tasks.

  • Maintaining optimal inventory levels ensures a smooth flow of supply without adding unnecessary costs.

  • Negotiate better terms with vendors by accessing accurate and current inventory information from the system

  • Centralized data and reporting create a single set of data commonly accessed by everyone in real time thus enhancing visibility at every stage

  • Inventory forecasting can predict trends, identify highest selling vendors, vendors with the most overdue payments and more

  • Increased customer satisfaction due to faster order fulfillment


How Much Does Inventory Management Software Cost?

The cost of an inventory management system largely depends on the needs of an organization. Based on the company size, inventory size and how many processes you need automated, the software can be customized.

With a complete ERP solution for inventory, the cost will be higher. A smaller suite of applications can be offered as a SaaS subscription at a very affordable fee.


Inventory management is a process that can be automated easily for all sizes of organizations in any industry. An optimally stocked warehouse will ensure an uninterrupted flow of inventory by forecasting dips and rises in demand.

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