The annual stock count turns up a gap between the books and the shelves, and nobody knows when it started. One item runs out in high season while another has been piling up in the warehouse for months, and the sales rep sells from memory because he doesn't trust the number on the screen. This is where many trading, distribution, restaurant and workshop businesses end up once the number of items grows and records are still kept in a notebook or an Excel file.
When does your company need an inventory management system?
You need one when the recorded balance and the actual stock keep disagreeing, or when you lose sales because an item ran out without anyone noticing. Before that point, an organized spreadsheet and a monthly count may be enough.
Other signs that the time has come:
- You have more than one warehouse or branch and move goods between them.
- You sell through more than one channel: a shop, an online store and sales reps.
- Your items have expiry dates or batch numbers.
- Working out the value of your stock at month-end takes a full day.
- Purchases get ordered when someone notices an empty shelf.
If scattered files are the bigger problem across your company, read the signs you've outgrown Excel.
What should an inventory management system include?
The basics are a clear item card, a recorded movement for everything that comes in or goes out, a live balance for each location, and reports that show what's moving and what's piling up. Anything beyond that depends on your business.
| Function | What you need from it |
|---|---|
| Item card | A single code, a unit of measure with conversion between carton and piece, a barcode, and cost and selling prices. |
| Movements | Receipts from suppliers, issues, transfers between warehouses, returns and damaged stock. Each movement carries the name of whoever entered it. |
| Reorder point | An alert when the balance drops below a level you set for each item. |
| Stock count | A full or partial count with a barcode scanner or a phone, with a report of the discrepancies. |
| Permissions | The storekeeper sees their own warehouse, and management sees value and cost. |
| Reports | Slow-moving items, fastest movers, stock value, and an item's movement over a period. |
How does the system calculate inventory cost?
Most systems use one of two methods: weighted average cost, or first in, first out (FIFO). Choose the method with your accountant before going live, because changing it later throws the numbers off.
Average cost is simpler and suits most general trading. FIFO gives a more realistic profit figure when purchase prices change often. If your items have expiry dates, have the system suggest issuing the batch that expires first. That is an operational question, separate from how cost is calculated. What matters is that the inventory system and the accounting software use the same method.
Off-the-shelf inventory software or a custom system?
If your business is buying and selling standard items directly, off-the-shelf software or the inventory module in your accounting software is usually enough. Start there.
A custom system is worth considering when inventory is tied to a process specific to you: manufacturing with recipes and components, equipment rental where items go out and come back, materials issued to projects where you need to know what each project costs, or a link to your online store and sales reps that off-the-shelf software doesn't support.
How does inventory connect to your online store and accounting?
When you sell from an online store and a physical shop at the same time, every sale has to come off the same balance. Otherwise you'll sell online an item whose last unit went in the shop that morning, and end up apologizing to a customer who has already paid.
The usual integration runs both ways. An order from the store reduces the quantity in the system, and a stock adjustment in the warehouse shows up in the store. On the accounting side, purchase and sales invoices and the stock value flow into the accounting software without being entered a second time. Decide from the start where each thing is edited, prices in one place and quantities in another, so the numbers don't conflict. We covered how to think about this in connecting systems through an API.
What are the common mistakes when rolling out an inventory system?
Most inventory projects stumble for reasons that have nothing to do with the software. The starting data is messy, or the team keeps handing out stock without recording it because a customer is in a hurry.
- Entering opening balances without a physical count, so the system starts with wrong numbers.
- The same item listed under different names, such as "Oil 1 liter" and "Oil liter".
- Allowing stock to be issued from a negative balance with no warning, so the problem stays hidden until the next count.
- Putting off training for the storekeeper, who will use the system more than anyone.
Go live after a full stock count, ideally on a closing day or at the start of a month. A wrong opening balance stays with you for months, and every report is built on it.
How do you start, and how long does it take?
- Clean up itemsOne code and one name per item
- Define locationsWarehouses and branches, and shelves if needed
- Opening countActual balances as of a set date
- Start movementsReceiving and issuing first, then transfers
- Add alertsReorder points and slow-moving items
The timeline depends more on the number of items and how clean their data is than on the development work. A first version covering receiving, issuing and balances can be running within weeks, with reports and the link to your store or accounting added in phases. We explained what drives the cost in the cost of custom management software.
We build inventory systems connected to sales and accounting as part of our custom software and systems service. Tell us how many items and warehouses you have and how you record movements today, and we'll suggest where to start.
Questions our partners ask
Can I use a phone instead of a barcode scanner?
In most cases, yes. A phone camera reads barcodes fast enough for stock counts and receiving goods. A dedicated scanner is faster when you handle a large number of movements every day.
Does an inventory system replace accounting software?
No. The inventory system tracks quantities, cost and movement, while bookkeeping entries and taxes stay in the accounting software. Ideally the two are connected so nobody enters an invoice twice.
When should I go live with the system?
After a full stock count, on a closing day or at the start of a month, so balances start out correct and are easy to reconcile with the accounts.
Written by the Visual Innovate team, the people who build, host and follow up systems, websites and apps for our clients in Jordan, Saudi Arabia, Oman and Egypt.
