A guide to Inventory Management Systems for businesses

Published on June 06, 2019
Last modified on May 13, 2022

Types of inventory management systems

There are different approaches to inventory management—and as with any other business process, there’s really no single ideal setup that will apply to companies of all types and sizes.

For example, very small businesses may be able to get by on manually updating the stock count in a spreadsheet or a basic accounting system as a way to keep track of inventory.

This practice is inefficient and error-prone in itself, but when such businesses scale up or start selling online and in different channels, manual inventory management stops becoming a viable option and becomes a huge strain in the workflow instead.

For ecommerce businesses, the solution is to adopt a more automated approach to this process, in the form of inventory management systems. Here are the three most common types of IMS:

1. Inventory management module for content management systems (CMS) or ecommerce platforms.

The simplest way to automate inventory management is by using a module for the CMS or ecommerce platform that you’re already using for your webshop.

Some of the most popular ecommerce platforms like Magento, WooCommerce, and Shopify have built-in features that let merchants manage inventory within their webshop’s backend.

There are also a number of plugins available in the market with added functionalities for businesses who want to extend the basic built-in features, or for those who use platforms that don’t offer inventory management functionalities out of the box.

As a last resort, you can also work with a software development company to develop a custom plugin for the CMS or platform that you’re currently using according to your specific inventory management requirements.

2. Inventory management functionality within an ERP system.

An Enterprise Resource Planning system or ERP integrates different processes within a business into a single platform.

A typical ERP system includes inventory management among its suite of features, which means that you get to manage your inventory in the same place where you manage orders, accounting, logistics, sales, marketing, and even customer relationship management and human resources.

The ERP can in turn be integrated with your webshop or your store’s point-of-sale system to synchronize inventory and other data across all your sales channels.

3. Standalone inventory management software.

A standalone IMS is a solution created specifically for managing inventory and usually offers more specialized features than a module designed only for a certain CMS or ecommerce platform, or even an all-in-one solution like an ERP.

Which type of IMS is best suited for your business?

Different factors come into play when choosing the best type of IMS that will satisfy your specific requirements. Here’s a basic table to guide you:

Type of IMS Who is it for?
Inventory management module for a CMS or ecommerce platform Smaller companies who sell through a single webshop, or multiple ones but hosted on the same CMS or ecommerce platform.
Inventory management functionality within an ERP system Small to medium-sized companies who already have an ERP in place (or in the process of implementing one).
Standalone inventory management software Bigger companies, or companies with inventory management processes that are a bit more complicated than what is typical.

If the categories above are too broad for you to accurately pinpoint where your business falls into, here are other factors that you can consider:

1. Your ecommerce strategy.

How do you sell online? If you only have one webshop, then it might be counter-productive to implement a full-featured inventory management software when the ecommerce platform you use already provides similar capabilities for you.

However, if you sell through different channels in addition to your webshop, like Facebook or marketplaces such as Amazon and eBay, an inventory management module may not be the best choice.

Instead, you’ll want to have a separate inventory management system that is not tied to a single platform (whether it’s within your ERP or as a standalone software) so that it’s easier to properly distribute correct inventory levels from a centralized source, and at the same time prevent inconsistent information across your different channels.

2. Your actual inventory management processes.

Inventory management usually gets complicated when you throw in different conditionals into the mix.

Do you keep track of raw materials and components at their different production stages, or just the finished product? Do you sync inventory at certain intervals only or in real time?

If your inventory management processes are not too complex to warrant a separate system, then you’re probably better off using a module for your webshop or the inventory management functionality in your ERP.

3. Integration with different systems.

Implementing an IMS means integrating it with the systems that you currently use—after all, even if inventory is up-to-date within your IMS, it will be no use without a means to seamlessly send such up-to-date data to your webshop and other channels.

Integration will relatively be easier if you choose to use an inventory management module for your webshop or even your ERP system.

With a standalone IMS, however, integration can get expensive especially if there are no out-of-the-box integration options for your chosen software.

It’s also important to note that too many integration crisscrossing between systems can potentially complicate your workflow in the long run.

For example, having a standalone IMS on top of an existing ERP means that you will need to connect both systems with each other and with your webshop and other related systems.

In such cases, you may need to consider a multi-channel connector rather than the usual point-to-point integration.

Typical features of an inventory management system

IMS is defined earlier in this guide as a technology solution that automates the processes involved in inventory management. But what exactly are these processes, and how important is it that they are automated?

1. Real-time synchronization of accurate inventory levels.

Keeping your inventory accurate and consistent across different systems is important to avoid both overstocking and overselling.

The most efficient way to ensure this is by having any updates to your inventory synchronized across all systems in real time.

This means that when a purchase is made or when an item is delivered, the stock count is automatically updated in all channels where the item is being sold—something that is simply hard or impossible to achieve with manual data entry.

2. Providing a comprehensive overview on all products.

Beyond the basic information on what types of products are available and how many are currently in stock, an IMS offers additional insights on your products that enable you to make smarter business decisions.

An IMS tells you which products are selling out faster so you know where to focus your future purchases. Inventory data within the IMS can also predict demand for certain products according to purchase history.

Different data provide different actionable insights that let you optimize your inventory further.

3. Re-ordering.

Some IMS can be set up to automatically re-order specified products as soon as they run out or hit a minimum count.

This eliminates the hassle of keeping up with various schedules for different products, so more than making sure that you don’t oversell when you’re out of stock, you’re actually making sure that your bestsellers never get to that point.

4. Managing inventory on the go.

Many IMS are hosted in the cloud and can therefore be accessed anywhere and using practically any device. This makes it easier to be on top of your inventory and make sure that everything is at its optimal levels.

5. Additional functionalities for inventory-related processes.

IMS covers a lot more than keeping up with accurate stock count.

Typically, these systems also include functionalities for managing related processes from picking and packing to shipping the products, and even handling item returns when they happen.

In some cases, these processes may also be handled in a separate internal system or by a third party and integrated with the main inventory management system.

Inventory management vs. Warehouse management

A warehouse management system (WMS) is different from an IMS, but the two systems are often confused with each other because of how closely related their functionalities are.

In fact, most functions present in an IMS often overlap with the ones found in a WMS.

Both systems technically deal with inventory. An IMS keeps track of the number of stocks and the warehouse where it’s stored; a WMS keeps track of the warehouse, specifically the exact location within the warehouse where items are located.

An IMS tells the bigger picture. Because a WMS is specifically used for tracking the movement of inventory within a warehouse, it offers a limited oversight of inventory-related processes.

An IMS goes beyond the warehouse and offers general information about inventory.

A WMS controls warehouse operations. Its functionality is not specifically limited to managing the exact location of items; it also controls all activities within the warehouse, and is often integrated with warehouse equipment to further streamline the workflow.

Implementing and integrating an inventory management system

There are many inventory management solutions in the market that cater to every industry. Here’s a selection of solutions according to the type of IMS that you want to implement.

Inventory management plugins

  • Magento has a built-in Multi-source Inventory for its version 2.3, which enables you to manage inventory from multiple store locations within the Magento admin.
  • Shopify also has an inventory management platform included in their system.
  • WooCommerce’s inventory management

Aside from these built-in website plugins, there are many third-party plugins created by developers that offer inventory management capabilities within your own ecommerce dashboard.

Magento

WooCommerce

Shopify

Standalone IMS

Here are a few top-rated standalone IMS that you could consider:

Integrating IMS with other company systems

Seamless flow of information between your IMS and other systems is a must for a well-structured workflow.

Typically, you will need to connect your IMS with your webshop, accounting system, ERP (if you’re choosing a standalone IMS), and PIM.

Point-to-point vs Multi-channel integration

You can connect your IMS individually with each system that it needs to be integrated to, or you can integrate it with one central connector that enables all your systems to be inter-connected with each other at once.

Point-to-point integration may work with only a few systems, but this setup can get complicated quickly once you have many different systems that you need to connect with one another.

An alternative solution is a multi-channel connector that acts as a central hub where all your systems can connect to—it then takes care of the synchronization of data between these different systems without the need of multiple connectors coming from and going to each system.

At 1902 Software, we have built our own integration component that acts as a multi-channel connector that we use for projects where point-to-point integration is more bound to complicate the integration setup than help the workflow.

Product Information Management (PIM) system

A PIM system is used to manage product information and distribute it to different platforms—typically suited for businesses with an omnichannel setup. PIM, ERP, and IMS all work together to deliver a seamless shopping experience for your customers, and at the same time an organized workflow for your operation.

Read our guides on these systems:

How can we help?

Our in-house team of developers is experienced in building custom integrations between webshops (Magento, WordPress, and Umbraco) and other company systems, such as ERP, PIM, and IMS. We also develop custom plugins if you could not find a suitable one in the market with your specific requirements.

Get in touch with us today, and our project managers will be happy to help with any questions you have about implementing an inventory management system.