Choosing the best inventory management system for your business

Published on: June 06, 2019

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 e-commerce 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 e-commerce platforms.

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

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

There are also a number of extensions 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. (See: Implementing an inventory management system)

As a last resort, you can also work with an IT development company to develop a custom module 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 e-commerce 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 e-commerce platform Smaller companies who sell through a single webshop, or multiple ones but hosted on the same CMS or e-commerce 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 e-commerce 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 e-commerce 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. (See: Implementing an inventory management system)

Next: Typical features of an inventory management system »