HOW TO CHOOSE THE RIGHT INVENTORY MANAGEMENT SOFTWARE

 What Is Inventory Management Software?

Inventory management encompasses far more than simply keeping track of what you retain in your warehouse or retail storeroom. Inventory management also includes keeping track of what is in your business department , including individual parts and therefore the combinations of these parts wont to build other products and services. Inventory management also involves checking out what your supply partners or your best customers have available . for little to midsize businesses (SMBs), keeping track of of these items can get difficult quickly if you're just employing a spreadsheet to try to to so. Tying that inventory product information into all of the opposite data platforms your organization uses requires a fanatical software called inventory management software. choosing the proper software package for your business are often difficult as you would like to weigh required features against the simplest pricing. to assist with this task, we've tested and compared nine inventory management software packages during this review roundup.

While "inventory management" seems like it is a simple tracking of what you've got , inventory management software actually goes several levels deep. The software should integrate with a minimum of one other back-end office system, namely, with either your accounting or enterprise resource planning (ERP) package. a listing management system's function is to trace those warehouse items through acquisition, sales, or use processes; locate them across one or many warehouses, and price (cost) the inventory (sometimes in multiple currencies) so you recognize the worth of things you've got in inventory for accounting purposes.

Core functionality definitely centers around your inventory levels, but this type of software also tracks sales, purchase orders (POs), and deliveries. Very small operations can escape with fulfilling these functions with an easy spreadsheet. However, any business larger than which will want the asset identification, order tracking, and provide chain optimization capabilities that an honest inventory management system delivers.

Costing Inventory

Inventory is taken into account a business asset. As such, it's accounted for within the Assets section of a company's record . When assets are sold or used, those results also are recorded within the Cost of products Sold (COGS) or Cost of products Used section of the earnings report . Common inventory valuation methods utilized in the US include First In First Out (FIFO), Weighted Average Costing, Standard Costing, and Specific Costing (or Specific Identification). Last In First Out (LIFO) was popular for a short time but has fallen out of favor and usually isn't used anymore in most countries.

The acronyms LIFO and FIFO represent the order during which inventory is acquired then sold or transferred. FIFO assumes that the oldest inventory is being sold or transferred first, while LIFO assumes that the most recent inventory are going to be used first.

Weighted Average Costing is usually utilized in situations where items are just like one another and it's impossible to assign a selected cost to a private unit, or where the accounting doesn't have the power to trace inventory by using FIFO (which is not the case in any of the inventory systems we review here). The weighted average method divides the value of products available purchasable by the amount of units available purchasable , which yields the weighted-average cost per unit.

Another frequent inventory valuation method is named Standard Costing. With Standard Costing, you substitute an expected cost for an actual cost within the accounting records, then periodically record variances showing the difference between the expected and actual costs. This approach is usually simpler than using FIFO in situations where there's an outsized amount of historical cost information. Standard Costing requires that you simply create estimated costs for inventory utilized in business; this method is employed when it's too time-consuming to trace actual costs. But it also requires that the estimated Standard costs be periodically compared with the particular inventory costs, and a variance entry be made within the accounting records.

An additional common valuation method is named Specific Costing. This method assigns a price to every individual item in inventory. Specific Costing is employed when inventory items each have a readily available cost that's different from other items in inventory. as an example , a custom furniture manufacturer would be likely to use Specific Costing.

Finally, you ought to also consider the opposite end of this spectrum, namely deciding the proper price for your inventory. You'll often see other suppliers offering price breaks supported order quantity: Save 10 percent on our widgets just by ordering 20 percent more widgets! But deciding the simplest choice here for your business are often complex counting on the sorts of carrying costs related to your particular products. The larger your inventory of products, for instance, the more you're probably paying for storage and perhaps even maintenance. this is often where a system which will help calculate Economic Order Quantity (EOQ) can help. Typically, these are available the sorts of customizable calculators you'll configure to require under consideration the precise needs of your particular business.

Some Common Inventory Terms

While it's beyond the scope of this introduction to supply a comprehensive list of the terms you would possibly run into, here are a number of the more common ones.

One frequent acronym you'll meet is named BOM or BOMP. This stands for "Bill of fabric s" or "Bill of Material Processing," and you will find it used most frequently in production inventory systems. A BOM is employed when a listing item is formed from sub-items; the list of those sub-items is that the BOM. an identical term is "kitting," which may be a bundling of parts or items that structure a finished item (which may then be used as an item within the BOM). you'll have both kitting and a BOM during a single item , counting on the item's complexity and the way granular your got to maintain inventory pricing.

Sometimes you'll meet the term "Just-in-Time (JIT)" inventory. this is often a logistics term utilized in supply chain management (SCM) operations to time the receipt of inventory in order that it arrives just before or precisely when it's needed. This inventory strategy reduces the time that inventory is really stored, which may save costs. Also tied into process management and SCM are some things called "Work in Process." This tracks any inventory released to manufacturing then tracks the inventory as it's used on the assembly shop or factory floor. In many cases, you will find these two terms when examining production inventory systems aimed toward everything from small production shops, like your neighborhood motorcycle fix-it shop , all the high to a large-scale automobile factory .

Other Things to seem for in Inventory Software

Because of all the complexity involved in how inventory works in any particular organization, there'll always be aspects of it that closely tie in with other parts of your accounting . for instance , both sales and buying are integral aspects of inventory since you cannot sell or use inventory if you haven't purchased it—and you cannot sell it if you do not have it available. The exception to the present is drop shipping, which allows you to accept a sales order then have it shipped on to the customer from your supplier's warehouse. counting on how your accounting is about up, drop shipments are often not recorded as inventory but, rather, are frequently posted on to the "Cost of products Sold" portion of your accounting .

 

It involves purchasing, shipping, receiving, and storing, and intrinsically , is tightly integrated with inventory. This will be a manual level entered by whatever inventory manager the system uses to get an alert, or maybe a PO that brings the amount of a stock item below a selected level. Some more sophisticated inventory systems use a way called the Economic Order Quantity (EOQ). EOQ may be a method wont to calculate the optimum amount and times to order (or reorder) inventory to attenuate holding or storage costs. Essentially, when using EOQ, you would like the inventory to travel as low as possible without leading to a stock-out (i.e., no inventory to sell or use).

 

Retail Inventory

One important characteristic of a retail inventory is that it integrates closely with a POS system, meaning your register . The POS system provides a checkout device (including not just a register but also things like Universal Product Code readers) that appears into the inventory database, identifies the precise item being sold, and deducts it from inventory available . counting on the sort of product or item being sold, individual items could also be identified with bar codes or Radio-Frequency Identification (RFID) tags. These are assigned when items are checked into inventory then verified of inventory when they're sold. Some POS systems even identify the situation of the item, perhaps during a specific warehouse or possibly even where it's sitting on the shop floor. this is often common in apparel, commodity , and electronic goods operations. Bar coding, item location, and bin identification also are functions you will find in many inventory systems.

One thing to stay in mind is that inventory software is nearly never used all by itself. Rather, it's often a neighborhood of a modular accounting . albeit that's not the case, it'll always got to ask or integrate with other back-end business systems, especially with what you're using for accounting. Some businesses will like better to get all of their accounting modules, including inventory management, from one vendor. This will provide not only cost savings in terms of licensing, but also will allow you to leverage precisely the sorts of features you would like , albeit they are available from different software vendors. All of the inventory systems we reviewed have the power to export data, a minimum of to a spreadsheet, so it are often imported into a third-party accounting .

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