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A Quick Guide to Inventory Management Systems for E-Commerce

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An effective inventory management system (IMS) is an essential component of an e-commerce technology stack. Once your e-commerce business reaches a certain scale, you’ll almost certainly need one to stay on top of things. 

This guide will explain to you what an IMS is, why you need one, and how to choose the best one for your company.

what exactly is an inventory management system (ims)?

An inventory management system (IMS) is software created primarily for physical goods organizations to maintain and report on their inventory. Rather than collecting and updating inventory data in a spreadsheet, the IMS provides a centralized, granular, real-time picture of stock levels. A good IMS will also provide a centralized location for ordering, receiving, and fulfilling.

what is the purpose of an inventory management system?

Inventory is one of the most essential uses of working capital for most retail and e-commerce enterprises. Unfortunately, tracking and calculating by hand can be difficult, especially as your firm expands.

At the same time, incorrect inventory tracking and forecasting can be costly in both directions. Underestimate your inventory requirements, and you may run out at the worst possible time – but overestimate. On the other hand, you may end up wasting money and space on inventory that isn’t selling quickly enough.

An inventory management system allows you to see what inventory you have on hand, how much money is locked up in it, and how well your product sells throughout your various sales channels. This allows you to better anticipate the things you’ll need, how many units to order, and how much to invest in inventory. 

Furthermore, it can perform all of this with excellent fidelity, such as the size and color of a specific item, allowing your projections to become more granular and your inventory investment to become more efficient.

An IMS can also help you save money on running expenses. A successful IMS, for example, will consolidate purchase orders, invoicing, inventory monitoring, and fulfillment into a single system, allowing you to save money on overhead.

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selection of an inventory management system

When deciding which IMS is best for your company, look at the following characteristics:

  • Usability. Your inventory management system will be one of the most used and vital systems in your firm. Choose a simple interface to pick up and learn (for both you and your team).a
  • Essential Integrations. As a key component of your technological stack, your IMS will interact with many of your company’s other systems, such as your sales platform (e.g., Shopify) and fulfillment system (e.g., ShipStation). As a result, it’s a good idea to do some research on which systems the IMS will need to communicate with and how to do so. Assume a potential IMS has a wide choice of integrations but not the one you require. In that instance, you’re asking for trouble with interoperability.
  • Mobile Compatibility. Your staff will almost certainly use the IMS on the warehouse floor as well as at their desks. For best efficiency, your IMS should be mobile-friendly and make it simple for the appropriate individuals to obtain the right information at the right time.
  • Detailed Reporting. While inventory tracking is important, it is only one aspect of what a strong IMS provides. Calculating your SKU-level costs and profit margins by hand is challenging because the numbers can vary quickly when material and transportation costs fluctuate. Look for an IMS that can programmatically calculate and report them, as well as any other information that may help you forecast better.

inquiries to ask an ims vendor

Choosing which inventory management system to use for your company might take time and effort. As a result, we recommend that you ask potential vendors questions as part of your due diligence process.

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Can all revenue channels link to the inventory management system, including wholesalers, store pos, and e-commerce? 

Why it is Significant: Your IMS can only be completely operational if there are some transactions in the system. For example, in order to get the full benefits of an inventory management system, it must account for sales made through your channels.

Is it possible to create purchase orders (pos) from within the ims?

Why it is significant: Creating purchase orders from the same system that manages your inventory simplifies your purchasing procedure. When you see something you need in the IMS, you may order it without switching to a different system, saving time and eliminating laborious data re-entry. 

If your IMS allows you to alter a PO after it’s been created, that’s a plus; you may wish to finalize the PO when you receive your supplier’s invoice, which will contain the final landing costs.

Are inventory levels updated as soon as the product arrives?

Why it is Significant: Your tracking system is only as good as its inputs. Assuring prompt updates when new merchandise arrives helps maintain the system up to date and correct.

Is batch tracking and expiration tracking available?

Why it is Significant: If your company offers perishable goods, your IMS can help you track losses due to expiration and better estimate how much to store in the future. If you have a problem with product quality, it can also assist you in isolating the problem to specific batches of items, minimizing the impact radius of the problem.

Is there an ims-connected fulfillment or shipping system that updates the fulfillment status of your customers’ orders?

Why it Matters: Integrations with shipping/fulfillment systems such as Shipstation and ShipBob allow you to immediately reduce inventory in the IMS as soon as the goods are sent, assisting you in maintaining correct records.

If you employ a 3PL to store and ship your items, you should inquire whether the IMS can be integrated with their systems.

Is the system capable of providing detailed analytics and reporting?

Why it is Significant: You need extensive information about how various sections of your business operate if you want to improve your forecasting and maximize your cash flow. As long as the system’s reporting features give sufficient granularity, your IMS can provide critical statistics such as gross profit per SKU per channel over time.

For manufacturers, does the system support production planning?

Why it matters: If your IMS can manage tasks like setting product production orders and manually reducing component inventory using a recipe, it can help streamline your backend procedures.

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Can the system connect to and integrate with your accounting software automatically?

Why it is Significant: Your accounting software system (QuickBooks Online, for example) is another critical piece of backend technology, and inventory data will be used to generate financial statements. Automating the two systems will save time and reduce the possibility of human error.

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