Top 5 Types of Inventory Management Systems


Top 5 Types of Inventory Management Systems

Poor stock management results either in overstocking or understocking — causing huge losses to businesses. 

For instance, a study suggests that retailers lose nearly $1 trillion worth of sales due to stock-outs. Also, note that 34% of the shipments are delayed due to the unavailability of stock.

Thus, inventory management related challenges can disrupt the entire supply chain. 

For small retail stores, managing their stock can be somewhat simple. However, for medium and large-scale retailers, manufacturers, and eCommerce stores, inventory management can get complex. Especially, if you don’t have robust inventory management solutions in place. 

At the same time, with the right systems, you can optimise your warehouse operations, inventory levels, costs, and profitability. 

Hence, in this guide, we’ll discuss the various inventory management methods and software that can automate your warehouse operations. 

What is Inventory Management?

Inventory management is the process of managing the procurement, storage, and distribution of stock. 

To put it simply — from the time you place the inventory order with your supplier until you ship them to customers, every process that takes place in between is part of the inventory management. 

Inventory Management Process

Whether you’re a retailer, e-store owner, or manufacturer, effective inventory management can improve your operational efficiency, delivery times, and profitability. At the same time, it also helps you reduce your inventory wastage and warehousing costs. 

That said, let’s glance through industry-wise inventory management aspects.

Retail Inventory Management

Retail inventory consists of finished goods that are sold to customers. The purpose of retail inventory management is to optimise stock levels and warehouse operations. 

With the right inventory management system in place, you can expect benefits like:

  • Decreased stock-outs
  • No overstocking
  • Effective procurement
  • Increased profit margins, and many more

Manufacturing Inventory Management

Unlike retail, manufacturing inventory includes raw materials, parts, work-in-progress stock, and finished goods. 

Here, the main reason to deploy inventory management is to ensure adequate stock so that production processes run smoothly. 

Multi-location Inventory Management

If you’re a large scale retailer, distributor, or manufacturer, you can consider a multi-location inventory management system. 

Since this method requires you to store inventory at strategic locations, it makes your distribution and shipping faster. 

Challenges in Inventory Management

Before we get into the inventory management systems, let’s understand what are the challenges that get in the way of effective stock planning. 

Here are some of the common obstacles. 

Challenges In Inventory Management

Demand Fluctuations

Market trends are changing quickly and with that consumer demand also varies. Hence, if you have excess stock of products that are becoming obsolete, you may end up selling them at heavy discounts. The other possibility is, such inventory may stay idle and occupy warehouse space. 

On the other hand, if there’s a sudden demand surge for specific products, you may encounter stock-outs. Moreover, your customers may also get disappointed.

Therefore, you need to forecast the demand trends accurately and plan your inventory strategy accordingly. 

Inaccurate Tracking

The errors in inventory tracking is another challenge that degrades your inventory management performance. Some of the common reasons for inaccurate stock reporting are:

  • Lack of automated tracking systems
  • Human errors
  • Stock levels are not updated in real-time
  • Mismanagement of returned orders, etc. 

Overstocking and Understocking

Having too much inventory and being out-of-stock — both cases affect your business adversely and it’s one of the most common challenges that businesses face. 

While overstocking increases your inventory and storage costs, frequent stock-outs may jeopardise customers’ loyalty towards your brand.  

Poor Production Planning

Production inefficiencies affect each stakeholder in the supply chain. 

For example, when a manufacturer fails to estimate raw material requirements accurately, it delays the entire production process. 

Hence, as a retailer or e-store owner your inventory planning and sales may also get impacted.

Lack of Software

If you’re not equipped with advanced Warehouse Management Software (WMS) that automates most of the inventory management and tracking, it increases the chances of human errors while tracking inventory. 

Moreover, manual inventory tracking takes much more time than automated systems. This reduces the overall efficiency of the warehouse team. 

Gaps in Communication

Communication and coordination are non-negotiable for successful warehouse operations. Especially, if you’re managing your inventory and warehouse operations manually, it aggravates the need for robust inter-departmental communication.

For instance, the procurement team missed informing the warehouse team about incoming inventory. In such cases, the warehouse manager would have to arrange resources at the last minute to unload the goods and shift them into the warehouse. 

Supply Chain Complexity

As per statistics, almost 90% of the goods are transported via ships. 

In the wake of Covid-19 and subsequent lockdowns, the entire logistics industry has gone through a major disruption. There’s an immense shortage of shipping containers and this has led the container shipping prices to shoot through the roof. 

Thus, global supply chain challenges can interrupt your inventory plans, procurement, and shipments.  

What is an Inventory Management System?

Now that we have understood the fundamentals of inventory management and the challenges that can affect it, it’s time to discuss the inventory management systems.

First, let’s not confuse the inventory management system with inventory management software. 

To define an inventory management system at the most basic level — it’s an approach or structure that encompasses all the tasks of stock planning and warehouse operations and helps you stay more efficient and organised.  

Here are some of the most used inventory management methods. 

Manual Inventory Systems

It’s an ancient inventory management practice that was being used in the absence of technological advancements. 

However, there can be an organised structure around it. Before computers, it was primarily a paper-based tracking system that transitioned into excel sheets later. 

In this method, a warehouse employee keeps a checklist of the items and tasks and then counts & weighs inventory, logs entries into physical registers, and feeds the data into spreadsheets.

Manual Inventory Systems

Whenever there’s an incoming or outgoing inventory, the above processes are repeated and sheets are updated accordingly. 


  • No specialised tools are needed — pen, paper, and basic computer are enough
  • No upfront investments


  • Slow and time-consuming processes
  • Higher labour costs
  • Increased chances of human errors
  • No real-time tracking
  • High-volume inventory turnaround can become a mess

Suitable for: Small businesses with limited inventory like local mom-n-pop stores or e-store operating from a home garage.

Periodic Inventory Management Systems

Periodic inventory management is also a traditional way of managing stock. It’s also known as seasonal stock-taking. 

Here, workers take a physical count of the goods at a predetermined time. For instance, every month, quarter, six months, or year. The numbers are then updated in the database and compared with the previous count. 

The previous numbers are treated as opening balance and the recent count as closing stock. The difference between the two is stock consumption. 

Periodic Inventory Management Systems

Thus, you can analyse various aspects like inventory usage, seasonal trends, etc. 


  • Simple and easy to implement
  • No investment in technology
  • Low maintenance technique


  • Not suitable if inventory turnover is quick
  • High investment in human capital
  • Higher possibility of overstocking or stock-outs
  • Lack of real-time data

Suitable for: Small size retailers and manufacturers with low inventory volumes

Perpetual Inventory Management Systems

Unlike periodic stock-taking, a perpetual inventory management system involves tracking every aspect of inventory and supply chain in real-time. 

Any inventory changes like new stock addition, redistribution, sold goods, etc. are immediately recorded and updated in the system. Such systems run on sophisticated software and devices like barcode scanners and RFID. 

Perpetual Inventory Management Systems

This method has a huge number of advantages as compared to the other inventory management methods. 


    • Real-time tracking gives you accurate and most current stock levels at all times
    • Labour hours are saved
    • Alarms you to reorder inventory at pre-set minimum stock levels
    • Transparency across all departments
    • Faster turnaround time in storage and pick-pack-ship process
    • Automated inventory reports and analytics
    • Accurate tracking and lower chances of human errors


    • High upfront investment in technology
    • Need to train staff 
    • System generated faults are overlooked

Suitable for: Mid to large scale retailers, eCommerce stores, and manufacturers 

Now, let’s briefly discuss Barcode and RFID systems. These are not standalone inventory systems. Rather, these are the tools that support the perpetual inventory management system. 

Barcode Systems 

Barcode systems make use of barcode stickers and scanners. Barcode scanners can be stationary or handheld devices with wireless internet connectivity. 

Further, the scanners are connected to centralised inventory management software. So any incoming or outgoing stock is scanned, the systems are automatically updated with the latest inventory count. 

Barcode Systems

Thus, it can speed up the inventory tracking process. 


  • Faster than manual tracking 
  • Automated inventory updates
  • Reduced human error
  • Accurate inventory count


  • Requires initial investment in technology
  • Applying stickers to a large volume of inventory can take time
  • Take more time than RFID tracking

Suitable for: Medium-sized warehousing facilities


RFID Systems

Radio Frequency Identification (RFID) system is the most advanced inventory tracking technology.  

Similar to barcode systems, RFID also has two primary requirements — RFID tags and readers. The tags are applied to inventory pallets. 

There are two types of RFID tags:

Passive tags: You need to scan them with RFID readers. But you can scan multiple tags at a time from a distance. So it’s much faster than scanning individual barcodes. 

Active tags: These tags emit their signals across the warehouse. Hence, manual scanning is not required. Moreover, any stock movement is automatically read by the stationed readers and updated into the system. 

RFID Systems

Thus, overall tracking is automated and expedited.


    • High-level of automation
    • Real-time tracking and system updates
    • Minimal human involvement
    • Higher accuracy


    • Significant investment
    • RFID tags are costlier than barcodes
    • Not worth tracking the low-value inventory constantly

Suitable for: Large warehousing facilities and fulfilment centres


Ideal Features of Inventory Management System

Based on our discussion so far, you’d know what type of inventory management system suits your business profile. 

You may want to consider perpetual inventory management with semi or fully-automated tracking systems. Whatever the case, below we have outlined the most needed features that your inventory management system must be equipped with. 

Here they are. 

Barcode Scanning

Consider barcode scanning as the most basic feature to have in your inventory management arsenal. 

Even if you’re operating on a small scale, barcode scanners will save a lot of your time that goes into manual tracking and then updating in spreadsheets. 

Real-Time Tracking

Unless you’re running a mom-n-pop store or a home-based small business, you’d need real-time stock tracking if you want to optimise your inventory and warehouse operations. 

Most importantly, having the updated inventory levels guide you if it’s the time to reorder the inventory from your suppliers. This can save you from the challenges of overstocking and understocking. 

Advanced Reporting

The reporting and analytics tool provides you with deeper insights into the inventory cycles, costs, and trends. 

For example, while referring to the inventory analytics you noticed that some products have been going out of stock faster at a specific time of the year for the last two years. 

Hence, you can order extra inventory for that period to meet the demand spike this year. Thus, advanced reporting can help you plan ahead for demand trends. 

Multi-location Inventory Control

If you store your inventory at multiple warehouses, then you’d need a centralised inventory system that connects all the storage facilities. 

This way, you can have real-time updates of inventory levels across all the locations. This would also allow you to transfer goods from one location to another as required. 


If you’re a multichannel retailer, it’s recommended that you have your Point of Sale (POS) systems integrated with your inventory management system. 

With such POS systems, whether you sell online or in-store, your inventory levels are updated immediately. 

Accounting Accuracy

A comprehensive inventory management system should also have an integrated accounting feature. 

This functionality can update your current inventory’s monetary value in your financial statements. 

Popular Inventory Management System Software

There are plenty of inventory management software out there to help you automate stock tracking. 

Here are some of the leading software you can consider for your business. 


Brightpearl has developed inventory management software to meet the requirements of e-store owners, multi-channel retailers, and wholesalers. 

The software’s functionality goes beyond simple inventory management operations. For example, it also enables demand planning, demand forecasting, and real-time inventory updates for multiple channels. 

Moreover, the system also allows you to install optional plugins to customise your software according to your business needs. 

Brightpearl - Inventory Management Software

Key features include:

  • Multi-channel inventory management
  • Automated inventory transfers between warehouses
  • Stock replenishment recommendations based on sales and forecasting data
  • Simple barcode-scanning system
  • Ability to create automation rules according to your needs
  • Advanced reporting and analytics 
  • Identifies overstocked goods

Pricing: Custom quote on request


inFlow is a popular inventory management software among the offline & online B2B wholesalers, manufacturers, and retailers. 

They provide both — cloud-based and disk-based — software solutions. Moreover, they also offer intuitive mobile applications to track your warehouse stock from anywhere.

The software allows you to monitor your purchases and sales from a single system that can also be accessed by the people you authorise. 

Furthermore, the picking list can be sent directly to your warehouse pickers’ smartphones so that you don’t need to print them. 

inFlow - Inventory Management Software

Key features include:

  • Inventory organisation according to categories, SKU, weight, dimensions, etc.
  • Generate, print, and scan barcodes
  • Create price quotes and custom B2B showrooms 
  • Ability to generate backorders
  • Real-time stock tracking
  • Recommended reorder points

Pricing: 14-day free trial and after that three pricing options to choose from:

  • Entrepreneur: 89 USD/month for 2 team members, 1 inventory location, 100 monthly orders + optional smart scanner
  • Small business: 249 USD/month for 5 team members, unlimited inventory locations, 2000 monthly orders + optional smart scanner
  • Mid-size business: 499 USD/month for 10 team members, unlimited inventory locations, 10,000 monthly orders + optional smart scanner

Oracle NetSuite

Oracle NetSuite provides a comprehensive suite of cloud-based software solutions across various industries and business domains. 

The NetSuite ERP Inventory Management Software allows you to control your inventory irrespective of the volumes and locations. 

This tool can help you optimise your inventory levels so that you have stock availability across all the sales channels to meet your customers’ demands. This also helps you reduce your inventory costs and increase profitability. 

Oracle NetSuite - Inventory Management Software

Key features include:

  • Automated multi-location inventory tracking in a single solution
  • Real-time inventory visibility into warehouses, retail stores, drop shippers, 3PLs etc.
  • Intelligent multi-location order fulfilment options to reduce costs
  • Avoid understocking or overstocking with accurate demand planning
  • Advanced analytics

Pricing: Custom quote on request


Ordoro inventory management software is the best-suited for eCommerce stores, drop shippers and volume sellers. 

They offer a built-in kitting and bundling feature to sell multiple products as one unit while tracking and adjusting the quantities of each product in the bundle. 

Moreover, you can also manage multiple suppliers and purchase orders on the same platform and reorder with just a few clicks. 

Further, Ordoro can seamlessly integrate with eCommerce platforms like Shopify, WooCommerce, Amazon, Magento, BigCommerce, etc.  

Ordoro - Inventory Management Software

Key features include:

  • Instinctive user dashboard 
  • Online support and learning resources
  • Automated inventory tracking 
  • Low-stock alerts
  • Shipping integrations with carriers and 3PL providers
  • Inventory costs analysis
  • Barcode scanning workflow

Pricing: You can choose from the following three packages:

  • Express: Free service with limited features
  • Pro: Starting at $499/month
  • Enterprise: Starting at $999/month


Megaventory is an ideal choice for franchise networks, retailers, wholesalers, and manufacturers. 

The system is easy to implement which makes it a good fit for small and medium-sized manufacturing facilities. It allows you to manage and track inventories in the production workflow.

For example, you can monitor and control the allocation of the components within production departments. Also, you can keep a tab on work-in-progress and finished goods. 

Megaventory - Inventory Management Software

Key features include:

  • Inventory alerts for raw materials
  • Stock return from clients 
  • The stock returned to suppliers
  • Barcode printing and scanning
  • Tracking expiry dates and batch numbers for raw materials
  • Dropshipping sales and purchases
  • Transfers between multiple locations

Pricing: 15-day free trial and then two pricing options to choose from: 

  • Pro: Starting at $135/month
  • Enterprise: Custom quote on request

Wrapping Up

Whether you’re a small retail store, drop shipper or an eCommerce giant, you need an inventory management system in place to run your business operations efficiently. 

For small businesses with limited inventory, periodic stock-taking may work. However, for medium and large scale enterprises, you’d need a perpetual inventory management system with advanced tools to optimise your warehouse operations. 

Hence, consider your existing inventory-related challenges and install a system that works best for your business. 

Frequently Asked Questions (FAQs)

What is inventory management?

Inventory management refers to tracking the stock levels, orders, sales, and procurement. It is applicable to all types of retail and manufacturing businesses depending on their size. 

What is the best way to track inventory?

The best way to track inventory is by using a perpetual inventory management system that tracks and updates the stock levels in real-time.

Which software is best for inventory management?

There are many inventory management software available in the market. The one that solves your inventory challenges as per your business scale is the ideal pick for you. 

What is stock and inventory management software?

Stock and inventory management software is an application that helps you track your warehouse stock movement and update them in the system. 

What are the two types of inventory management?

The two main types of inventory management methods are:

  • Periodic inventory management
  • Perpetual inventory management

What is inventory management software?

An inventory management software is a software application that helps you automate the planning, procurement, and tracking of the warehouse stock. 

Why is inventory management important?

Inventory management is important because it allows you to keep a track of your stock levels so that you can reorder the required items and avoid overstocking the slow-moving products. Thus, you can operate at optimum inventory levels and reduce warehousing costs.

What is EOQ in inventory management?

Economic Order Quantity (EOQ) is an ideal quantity of products to be ordered that meets the market demand without overstocking or understocking. EOQ is derived after calculating the variable like demand, order costs, holding costs, etc. 

What is an inventory management system?

Inventory management system is a method that you adopt to manage your warehouse stock. 

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