5 types of inventory system and how order management can be a growth tool for your SMB

11 Mar 2022

For a business that relies on moving inventory, you need a robust system to keep track of everything. As your SMB grows, the amount of inventory you need to manage will increase. If your inventory management system isn’t up to the task as your business scales, you’re going to struggle to grow.

There are many ways to manage your inventory, though some are far better than others. That’s why today, we’re going to take you through the different types of inventory management and why automated systems can help your business grow.

What is an inventory management system?

Simply put, an Inventory Management System (IMS) keeps track of your stock. It should tell you where the stock is, how much of it you have, and help you identify slow or fast-moving product lines. A good IMS will also help increase customer satisfaction. It can track a product throughout the order fulfilment process and alert you of low stock levels with enough time to re-order that product to prevent stock outages.

5 types of inventory system

There are many different ways to manage your inventory, and which system you choose depends on the needs of your business. That said, there are some clear winners and losers in inventory management.

Manual inventory management

You get a pen, and you grab a piece of paper. That’s about the extent of a manual inventory management process. Simply count your products by hand, log the number on your piece of paper, and you’re ready to go!

If you read that and thought it sounded like an inefficient system, you’re not wrong.

Manual inventory management can work for tiny businesses. But as your business scales, it’s nearly impossible to accurately keep track of your stock levels manually. So, let’s just skip past this one and look at some inventory management systems that can scale with your business! 

Periodic inventory management

Inventory management can be a struggle, especially when it comes time for a full stock level check. Performing a complete inventory check is a challenging and lengthy process that tends to involve a large team. Performing something like this daily or even weekly is an exhausting prospect, and businesses can’t expect to keep up this inventory management style.

Periodic inventory management is a system that tracks inventory every quarter in line with accounting periods. This is an excellent option for companies with smaller teams and tighter budgets that may just be starting with an inventory management system.

Unfortunately, the long periods between stock checks can cause problems. Items can go missing with no real information on when and how they disappeared. It’s common for businesses that use periodic inventory management to see more discrepancies in their stock level reports than those taking stock more frequently.

Perpetual inventory management

A perpetual inventory management system may be the answer for those looking for a highly accurate way of tracking inventory. Of all the inventory systems, this is the only option that will offer real-time information regarding sales, fulfilment status, stock levels, and how each product is selling.

It doesn’t take a genius to tell you that this type of inventory management system takes a little more than an excel sheet. To achieve the maximum potential of a perpetual inventory management system, you need the proper software. 

Using cloud-based inventory management software can transform the way you manage your stock. These highly accurate systems can automate many of the tedious tasks you would need to perform manually, freeing you up to focus on what really matters to your business.

Workhorse provides small and medium-sized businesses with a cost-effective solution to inventory management. Our perpetual inventory system empowers your business by taking away the stress from inventory management by offering highly accurate, automated stock-taking processes on a platform that suits your businesses needs.

Ready to make the switch to a highly accurate and easy inventory management process? Click here to see how Workhorse can help your business grow in 2022!

Barcode inventory system

Barcode inventory systems use scannable tags and product numbers to track stock levels. This works well with periodic inventory management systems as big stock takes only require workers to scan each barcode, while the software automates the rest. These are commonly used in retail settings because retail outlets can incorporate the inventory system into their centralised sales system. 

This system is far more accurate than manual inventory systems as each barcode directly corresponds to the appropriate item. This means that every time a product is scanned at checkout, the system will automatically update stock levels, providing you with real-time information and reliable analytics.

Some businesses may use separate barcodes from ones the manufacturer has created for the item. This allows them to use their own organisational system rather than creating one that centres around the predetermined manufacturer barcodes. While this can be helpful at an organisational level, it requires a lot of work upfront. 

You’ll need to task your employees with correctly labelling each item you have in stock. Despite this, it’s still much more efficient and accurate when compared to manual inventory management. 

Radio Frequency identification systems

Radio frequency identification (RFID) is an increasingly popular way of managing inventory. The system uses specialised tags attached to each item in your stock. Like barcodes, you can scan these tags to identify each item and send information to your inventory management software. RFID tags come in two forms: active tags, which broadcast their own signal and passive tags, which require a scanner to track them.

RFID tags can serve a dual purpose in a retail setting. You can incorporate these small tags into clothing tags, security boxes, and even stickers. Each tag can be configured to react to your in-store security systems, such as door scanners, to help reduce theft and loss. This allows businesses to ditch the bulky and unattractive security tags of old while maintaining high loss-prevention levels. 

Both forms of tag can be used for highly accurate stock management, though active tags are generally best for providing real-time data on where things are at all times. Active RFID tags provide a truly automated way of tracking inventory. Active tags constantly communicate with your IMS to let you know where they are and when they got there. And you don’t have to do any tedious scanning! 

Passive tags work much like a barcode inventory system. However, the workload is significantly lightened because you can scan multiple tags simultaneously without seeing each individual tag.

While RFID systems come with many advantages from stock management automation to security, they have a downfall. Out of all the options we’ve described, RFID systems are the most expensive option, especially if you opt for active RFID tags.

Businesses going the RFID route will need to update their entire inventory management system to be compatible with RFID, including new handheld scanners and a new software platform that facilitates the automation opportunities that RFID tags offer. For smaller businesses, the cost of RFID systems may be too high compared to the advantages they can offer.

Which is the right inventory management system for your business?

Truthfully, the answer to this question depends on how your business operates. Each system has its pros, and each has its cons. To make sure you chose the right type of inventory system, you need to consider the following:

  • What kind of inventory do you have?
  • How much stock do you need to manage?
  • Does the system fit your budget? 
  • How important is real-time information to your business?
  • Will your business grow beyond the capabilities of your chosen system?

Once you have the answers to those five questions, you can determine which system will be best for your business and get back to the important stuff. 

Ready to ditch the spreadsheets and revolutionise your inventory management? 

Workhorse is here to make your life simple. Workhorse can automate all the tedious inventory management tasks and simplify your processes. 

Our unique approach allows you to scale the platform with your business. We only offer the features you need instead of bundling in hundreds of features you may never use. This means you only pay for what you use and nothing you don’t!

For highly accurate inventory and order management software that truly fits your needs, look no further than Workhorse. Get to know our system and be sure it’s right for you by booking a demonstration with our experts, or dive straight in with a free trial! We can’t wait to meet you!

Ready to transform your inventory management?

Ditch the spreadsheets and provide your team with the tools they need to make better inventory decisions.