What is Inventory Management Software?
Inventory is the items or goods that an organization keeps in the warehouse for future use or sell to customers for profit. Inventory management software is a software system for tracking stock levels, orders, sales, and deliveries. In manufacturing industry, it is used to create a work order and bill of materials. Organizations use inventory management software to avoid product outages and overstock so that they can optimize the inventory cost.
Discovering Use Cases
When you investigate the real pain points and what users want — they often really do not match. This is because we are naturally biased due to our experiences of past usage of similar products. So, it is very important to keep our mind open and look for possibilities. The best approach to understand the “unknowns” is to have a proper discovery session of your current use cases and find the industry best practices to execute those use cases. “Discovery of use cases” often helps you to achieve the digital transformation which can optimize your operations and increase profitability. One of the approaches is to start the discovery process is as follows:
- Assemble a team which includes the perspective end-users of the application, IT professionals, and business leaders.
- Start discussing pain points that the team is facing and ask each of one to write as many pain points as they can think of in 20 minutes in sticky notes and put them in the wall.
- Cluster the sticky notes according to the theme. Then ask all participants to vote each cluster.
- Select top rated two to three areas. Then finalize persona (typical user) for each of these use cases.
- Create a user journey of each user. How they work in a typical day and do they interact with software system. Discuss in detail pain points.
- Now, collectively you can discuss ROI of each use case for short term and log term.
Assessing Requirements
While defining requirements, it is important to prioritize requirements as must-have and nice-to-have. This will help you to short list the right inventory management software. Often, integration to third party software are missed in the assessments. For example, you may be running Quickbooks Desktop for accounting. So, integration of invoices and bills with Quickbooks Desktop could be one of the requirements. One may define some of the basic requirements as:
- Stock level tracking
- Kitting or bundling of items
- Bill of Materials (BOM)
- Pick, pack and ship sales
- Returns management
- Reordering
- Serial number tracking
- Purchase order
- Sales order including Quote and Invoicing
Scaling for Future Growth
You are working to grow your company. To support the growth, you need to scale your operations. To scale you may need advanced inventory system. It is difficult to think what you will need in future. One way to find out is to think that you will have multiple warehouses, there will be a dozen of purchasers and purchasing managers, you need to handle sales in multiple regions, you may want to integrate with CRM application, and so on. The question you should ask — is this inventory control system open enough to support your future requirements? Does it have APIs to integrate with other applications?
Inventory Management Software for Small Business
Here are some of the inventory management software features that I have listed. Some of these features are advanced which are usually only available in ERP applications.
Create Inventory Item:
You maintain good or item in the inventory system. An item is defined by: item code, description, selling cost, purchase price, discount, quantity, unit of measure, barcode and specification are the basic definition of an item that all inventory control system provides. In addition to the above, an inventory management software also provides other attributes to define items: model, color, country of origin, other costs, weight, length, height, width, category, asset account, and so on.
Stock Replenishment Alert:
Having inventory stock alerts before it runs out helps business to handle inventory outage. You should be able to set stock threshold cat a global level or per item level threshold for alert. When the stock level goes below the threshold then alerts are generated. You should be able to convert an alert to purchase order.
Update Stock Manually:
Manual count of stock level in a warehouse is a normal process. Sometimes, items are misplaced or scraped and so it is difficult to reconcile the actual count and the count in the system. So, a manual update that can be audited is a required feature to run a warehouse smartly.
Warehouse Locations:
You may need more than one warehouse to operate your business. Service companies often maintains stock in their servicing trucks. So, it is important that the inventory system must allow to maintain stocks in multiple locations. This means, user should have visibility across the warehouses and ability to transfer stocks between the warehouses.
Purchase Order:
Purchase Order (PO) is a commercial document and first official offer issued by a buyer to a seller indicating types, quantities, and agreed prices for products or services. It is used to control the purchasing of products and services from external suppliers.
A purchase order software provides creating, approval and issuance of PO. It integrates with sales order and inventory management system to seamlessly integrate the complete lifecycle of buying and selling of products and goods. A typical purchase order software provides:
- Tracking of sales and purchase
- Dropship purchase and sale
- Receiving and returning deliveries
- Vendor wide aggregation of purchases
- Vendor wide aggregation of bills
Sales Order Fulfillment:
When you fulfill a sales order, you are basically picking up items from your inventory and packing it and sending to the customer. The picking up items from the inventory should deduct the quantity of your stock. This sales order fulfillment to inventory deduction should be transparent to user. User should be able to track which sales order or invoice deduct its’ stock.
Purchase Order Goods Receive:
When you receive goods, the inventory management software should be able to do following:
- Able to receive items in any warehouse location
- Able to receive all or partial quantity
- Able to add received the stock quantity
- Generate printable good receive notes
Inventory Item Tracking:
You receive items and put in your warehouse. You pick items from warehouse to ship. Sometimes, there are scrape or lose. So you do cycle count of your inventory and manually adjust your stock. So, in a way your inventory is dynamic. You should have a way to track why and how your stock levels are going up and down. A good inventory management system enables you to track your inventory in each transaction level.
Transfer Stocks Between Warehouses:
When you have more than warehouse, you need the ability to transfer items from one location to another. An inventory management system must allow you to transfer items between warehouse locations. This transfer should be track-able. It should indicate when items are on the way to transfer or already receive by receiving warehouse.
Bundling or Kitting of Items:
Many times, you bundle goods and items and sale them as one unit. The bundling of items is called kitting. Kitting needs a special way to handle. Kitting is considered as equivalent to inventory items, but they are not. They are logical items created using inventory items.
Inventory management system should allow to create kitting item by selecting actual items from inventory. You should be able to sale kitting items using quote, invoice, or sales order. When you fulfill the kitting, it should automatically deduct the actual inventory stock level.
Bill of Materials:
Specially if you are a manufacturing shop then you will need a way to import or create bill of materials (BOM) in the inventory management system. Often BOM are used in manufacturing as well as a purchase requisitions for a sale. While using it for manufacturing, you are basically creating BOM using inventory items or materials. Once the final item is manufactured, you simply use your BOM to add stock level for the finished product. This will automatically deduct the stock for materials or items that are used in the BOM product.
When you use BOM for purchasing, you are basically importing a list of items that your customers have ordered. This BOM will automatically create the purchase orders for the vendors.
Vendor Catalog:
An inventory management system for small and medium sized business should also provide vendor catalog. This way, you can main your supplier’s information such as item code, price, description etc. Your purchase order system should use vendor catalog automatically while placing order to the vendor.
All vendor catalogs are not same. There is software who maintains network of suppliers and their catalogs. You can simply subscribe those catalogs. When needed you can simply search from all vendors and purchase from one of the vendors. This is a good way to buy office supplies. In many cases, especially for B2B scenarios where you are buying to sell, you may need specialized vendor catalog that you want to maintain by yourself. In these types of cases, you should look for a solution which can create the vendor catalog automatically for you.
Sales Order and Inventory System:
Sales Orders (SO) is a document which outlines information about the customer, and items, quantities and costs that are order. Sales orders are created when a customer wants to buy goods or services from you.
A sales order management includes quote, invoice, and sales order modules. A quote can be converted to an invoice or sales order. A sales order is integrated with inventory — that is when you fulfill items, it deducts the stock quantity from the inventory. A sales order allows you to split or merge orders and create shipping list for shipping. It automatically generates invoice while fulfilling the order.
Field Service Management — Work Order
If your company performs installation, maintenance, construction, or servicing for your customers (or your own manufacturing plant) then you may need a field service application which is integrated with inventory management system. It should allow you to create work order, schedule your field techs, and let field tech create work order report. It should be able to handle materials or spare parts required for the field work, able to create PO, issue invoice for the work, and maintain customers assets in your database.
Integration with Accounting System for Small Business
An inventory management system generates bills and invoices. You need invoices and bills to part of your accounting system. For example, you are using QuickBooks for your accounting. You should be able to automatically sync your invoices and bills from Inventory Management System to QuickBooks.
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