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Automated Inventory Management – A Quick Guide
9 min read

Automated Inventory Management – A Quick Guide

An automated inventory management system is a software-based solution that is designed to automate processes in the warehouse, thereby streamlining workflows, optimizing stock levels, and reducing inventory-related costs.


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What is an automated inventory management system?

An automated inventory management system, also called a perpetual inventory system, is a software-based solution that aims to automate workflows and minimize the effort needed to manage a company’s inventory. Automated inventory management consists of various functions that are performed automatically or semi-automatically, including inventory tracking, planning, and reporting. The core of an automated inventory system is inventory management software such as MRP or ERP with additional integrations possible that could extend the scope of the system.

Although automated inventory management systems are particularly advantageous to businesses dealing with large inventories, companies of any size can benefit from using one.

Automated inventory management software functionality

While many software solutions market themselves as automated inventory systems, there are certain functionalities that a solution needs to have before it can be considered one. Here are the key features of an automated inventory system:

Inventory tracking

An automated inventory system records stock movements in real time and updates inventory data accordingly, providing users with a complete overview of their inventory operations. Knowing exactly what the company has in stock, where different items are located, and how frequently they are used or sold enables you to navigate better both in your physical stockroom as well as the warehouse you have “on paper” (in this case, in a paperless system). And all this without frequent inventory counts. Functionality such as automated stock lot tracking and serial number tracking allows you to deconstruct a product’s journey throughout the supply chain, from the raw material lots coming from a vendor to a single unit delivered to a customer. An overview of the historical performance of your stock keeping units also sets the basis for accurate demand forecasting.

Inventory planning

Thanks to always having up-to-date information regarding inventory levels, incoming orders, production schedules, etc., an automated inventory system enables you to accurately plan your purchases. For example, an MRP system allows manufacturers to calculate the material requirements associated with an order in just a few clicks as well as raise pre-filled purchase orders for missing goods. This significantly improves order processing and purchasing speed. In addition, with functionality such as the master production schedule, manufacturers can use demand forecasts to semi-automatically create long-term material and capacity plans.

Inventory valuation

Within an automated inventory system, all inventory is continuously recorded along with its costs. This enables the system to provide you with a real-time overview of what you have in stock and how much it all costs. In addition to seeing how much of your cash is tied up in stock, this is reflected in the cost of goods sold (COGS), which has a direct impact on the profitability of the company. The COGS is also calculated automatically within proper MRP/ERP systems.

Reporting and data analytics

In addition to inventory costs and COGS tracking, an automated inventory management system should provide you with dozens of different reports and metrics related to the performance of your inventory. These may include your current inventory levels, your items’ movement history, quality statistics, critical on-hand reports, stock aging and expiry reports, etc. Having this useful information at your fingertips allows you to better optimize and manage your inventory, preventing stockouts and overstocking, minimizing dead stock, and maintaining healthy service levels.

Inventory-related notifications

If you like to stay on top of your operations, inventory notifications are a must in an inventory system. For example, low stock alerts should be sent out when inventory levels drop below the reorder point. While this is one of the most important types of notifications in any company that sells physical products, some systems can also be set up to notify you of items that require quality inspections, order status changes, new tasks assigned, etc.

Automated data entry

A huge part of automation within an automated inventory management system has to do with data entry. With barcode scanning, data can be captured and recorded within a fraction of a second, with the software instantly processing and updating the data within the system. But that is just the tip of the iceberg as these systems automate hundreds of business processes that would require someone to manually enter data within a spreadsheet-based system. Eliminating this time-consuming, no-value-added work allows you to spend those resources in more strategic areas of the business.

Automated communication

Access to information is key to making good decisions. Automated inventory systems automate much of the communication needed to convey important business information between employees and departments. For example, when a production floor employee marks a batch of products finished within the system, the stock levels of this particular product instantly reflect that. When a huge order of products is sold, the goods are automatically booked from inventory and low stock alerts are sent out. This instant exchange of information has the potential to significantly streamline inventory management processes in any business.

Multi-channel synchronization

A proper modern automated inventory system extends beyond the core software’s functionality, integrating also with an array of third-party apps. These integrations automate the exchange of data between systems and allow you to, for example, sell your goods through e-commerce platforms like Amazon or Shopify and have each sale reflected in the stock levels within your warehouse management system. This way, you can use the inventory management software as the base for managing inventory across multiple sales channels. 

Multi-location management

One of the central tenets of cloud-based software is that it is accessible from anywhere with an internet connection. However, for growing companies, it is also necessary to be able to separately manage multiple warehouse locations without having to open another software account. Having multi-location management built into the system makes it much more scalable – something that you should always plan ahead for.

Benefits of automated inventory management

Automated inventory management brings a multitude of benefits to businesses, regardless of their size or industry. Here is a comprehensive look at how it improves various aspects of your business operations:

  1. Reduced costs. Automated systems significantly reduce operational costs by improving inventory control and eliminating manual processes. This leads to lower labor expenses, decreased carrying costs, and optimized stock levels, ultimately improving the bottom line.
  2. Minimized risk of human errors. With manual inventory management, errors in data entry and stock counts are unfortunately very common. Automation mitigates this risk by ensuring that data is accurate and up-to-date, reducing costly mistakes.
  3. Optimized stock levels. Automated systems enable you to use historical sales data to achieve accurate demand forecasts. They also enable precise material planning and setting reorder points for effective replenishment. This optimization helps businesses allocate resources more efficiently.
  4. Higher visibility. Real-time inventory data provides a clear view of stock levels, enabling businesses to make informed decisions about purchasing, sales, and replenishment. This heightened visibility is particularly beneficial for supply chain management and warehousing processes as every item is documented.
  5. Full traceability. Automation offers full traceability of inventory items, making it easier to track their movements throughout the supply chain and production. This sets an effective basis for quality control, compliance, and recalls.
  6. Faster order fulfillment. Optimized inventory ensures that your service levels are high enough to promptly respond to customer orders, thereby increasing customer satisfaction. Improved communication across the operation also increases fulfillment speed.
  7. Better communication. Automation facilitates better communication, be it with other departments and employees or suppliers and distributors. Whenever an issue occurs, it can be quickly pinpointed and communicated to the responsible parties. In addition, automated inventory systems standardize and clarify a lot of the communication related to inventory management and procurement.
  8. Scalability. Automated inventory management solutions are scalable, making them indispensable for small businesses. As a business grows, the system can adapt to handle increased numbers of SKUs and other inventory data.

In summary, automated inventory management systems enhance operational efficiency, reduce costs, improve customer satisfaction, and offer scalability. They are essential tools for businesses seeking to optimize their inventory control, minimize errors, and remain competitive.

Choosing an automated inventory management software

All businesses should select an automated inventory management software that aligns with their specific operational needs. Here are some key considerations:

Small retailers or e-commerce businesses should opt for user-friendly and cost-effective inventory management software. Key features to look for include integrations with e-commerce platforms and POS systems, real-time inventory tracking, and barcode scanning capabilities. The goal would be to streamline order management, reduce manual data entry, and offer mobile access for on-the-go management. Scalability is essential to accommodate business growth. Additionally, comprehensive customer support and training resources should be available to assist with software adoption and troubleshooting.

Distributors should choose inventory management software that emphasizes streamlined supply chain operations. Key features include robust order management capabilities, real-time inventory tracking, integration with suppliers, and multi-location support. Additionally, it should be scalable to accommodate growing product lines and distribution networks while offering user-friendly interfaces for ease of use.

Manufacturers should choose a Manufacturing ERP or MRP software. These solutions are specifically designed to address the complex inventory management needs of manufacturing operations. Manufacturing ERP software integrates inventory, production, sales, procurement, and finances to provide manufacturers with a centralized platform to manage their whole operation. They help optimize material procurement and production planning, ensuring the efficient use of resources and timely order fulfillment.

Key takeaways

  • Automated inventory management systems are software solutions that automate inventory-related processes.
  • These systems offer features such as real-time inventory tracking, data entry automation (e.g., barcode scanning), inventory planning, and multi-channel integration for data synchronization.
  • Businesses using automated inventory management systems enjoy reduced operational costs, minimized human errors, optimized stock levels, enhanced visibility, full traceability, faster order fulfillment, better communication, and scalability.
  • The choice of an automated inventory management system should align with a business’s specific needs, whether it’s a small retailer, distributor, or manufacturer.

Frequently asked questions

What is automated inventory management?

Automated inventory management is a software-based system that automates inventory-related tasks like tracking, planning, and reporting, reducing manual effort and improving accuracy.

What companies use automated inventory management?

Companies of all sizes across various industries use automated inventory management to streamline their inventory processes and improve efficiency.

What are the benefits of automated inventory management?

The benefits of automated inventory management include reduced operational costs, minimized errors, optimized stock levels, enhanced visibility, and improved order fulfillment speed.

You may also like: Raw Material Inventory Management Guide for SMEs (2023)

Madis Kuuse

Madis is an experienced content writer and translator with a deep interest in manufacturing and inventory management. Combining scientific literature with his easily digestible writing style, he shares his industry-findings by creating educational articles for manufacturing novices and experts alike. Collaborating with manufacturers to write process improvement case studies, Madis keeps himself up to date with all the latest developments and challenges that the industry faces in their everyday operations.

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