Inventory Management System

Learn about inventory management systems, different types & how an inventory management system works, and free resources to help efficiently manage inventory.

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Published March 3rd, 2021

What is an Inventory Management System?

An inventory management system is an organized set of methods primarily used in the retail industry to closely monitor the movement and conditions of raw materials and finished goods. Inventory management systems, or inventory systems, aim to streamline product-related workflows and business processes—from selling, storing, and sourcing inventory.

What is the Best Inventory Management System?

The best inventory management system is greatly dependent on a variety of factors for its users such as company goals, team size, and tech budget, among others. While the best inventory management system has yet to be objectively proven, consider the following characteristics to help determine the best inventory management system for your business:

  • Easy-to-use

    Managing inventory on a regular basis is already a challenge in itself, so adding systemic complications is the last thing that frontline teams will ever need. Any inventory management system should be easy-to-use enough that employers can seamlessly deploy it across sites and employees will want to use it every day. Think about the functionality that workers actually need to make it easier for them to do their jobs efficiently.

  • Flexible

    Transitioning from paper-based inventory lists to digital inventory checks or moving from one inventory management system to another causes procedural changes, especially during implementation. Since it takes time to establish the new and improved way of managing inventory, it is essential for an inventory management system to be responsive to different user needs and system requirements.

  • Cost-effective

    One of the biggest enablers—and sometimes, hindrances—to enforce an effective inventory management system in a company is resource allocation. Retailers need to make time to look into the baseline features they need for operating productively and set aside appropriate budgets for investing in systems that can especially benefit the organization for long-term success.

What are the Types of Inventory Management Systems?

While inventory management systems come in various forms with different functions, it is generally accepted that there are two major systems for managing inventory: periodic and perpetual. The main difference between the periodic inventory system and the perpetual inventory system is how often inventory data gets updated—the former periodically updates inventory, while the latter updates inventory data in real-time.

How Do Inventory Management Systems Work?

Generally, inventory management systems work by covering all data collection and record-keeping of inventory-related aspects of the supply chain—from suppliers to retail stores. Specifically, here are the top 5 ways how an end-to-end inventory management system typically works:

Inventory Checklists

It all starts with a checklist. Inventory checklists are used to itemize stocks of merchandise, goods, properties, or building materials and record if the list of supplies and purchases corroborate with the actual number of products on hand. There are different kinds of inventory checklists depending on scope and type such as a finished goods inventory checklist and a food inventory checklist.

Inventory Checklist

Use this inventory checklist to add an unlimited number of items with their label, quantity, and net value. You can also take photos and automatically attach them in the report. Confirm that you have completed checking all stocks by placing your digital signature, and with a tap of a finger, instantly send the inventory list to assigned people.

Work-in-process Inventory Checklist

Checking work-in-process or unfinished goods can be one of the most challenging tasks because it is the intermediary stage of inventory—between the raw materials and final product inventories. Auditors can take advantage of this digital checklist to record work-in-process goods with photo evidence and even include a target completion date.

Raw Materials Inventory Checklist

Inventory management entails making sure that even supplies of unused raw materials are all accounted for. Utilizing this checklist can help inventory clerks to determine whether certain raw items are directly or indirectly integrated into the final product. You can also list all the used, degraded or broken, and currently available raw materials and specify the total inventory value, total number of inventory items, and total cost, including the cost per item.

Retail Store Audits

Effective inventory management systems have solid store-level procedures in place. With scheduled and surprise retail store audits, employers can efficiently control and monitor the status, branding processes, and standardization of retail outlets, especially in keeping track of product inventory.

Retail Store Audit Checklist

One of the fastest ways to enforce an effective system for inventory management is to regularly conduct retail store audits. Use this checklist as a general guide to ensure that not only the store layout, window display, and facilities meet set standards, but also the products, point of sale materials, and storage are all set in proper order.

Visual Merchandising Audit Checklist

Proper visual merchandising in retail stores can also help in managing inventory more effectively. Visual merchandising audit reports offer a more comprehensive view of inventory, allowing personnel to easily corroborate stocks across stores. Utilize this checklist to evaluate a store’s exterior and interior, shelves, in-store promotions, and staff.

Retail Mystery Shopper Checklist

To continuously improve the effectiveness of current inventory management practices, consider implementing mystery shopper activities. Retail mystery shopping can help employees receive feedback from the customer’s perspective and look into the normal, day-to-day operations of a retail store, including how they manage inventory. This checklist comes with inspection items relating to inventory such as the path to purchase and more.

Product Inventory Inspections

Product inventory should not only be displayed and priced correctly but also all accounted for, especially in terms of quality. Regular visual inspections of raw materials, work-in-process goods, and finished products help maintain the quality of inventory.

Incoming Goods Inspection Checklist

Managing inventory can be made easier when they are already verified for accuracy upon receiving them. This incoming inspection checklist can be used by quality assurance personnel to make sure that a specific shipment aligns with purchase order specifications. Inspect incoming inventory for its color, shape, and markings, label them as accepted, conditionally accepted or rejected, and indicate whether or not there are major or minor defects.

Packaging Quality Control Checklist

High-quality packaging is a significant part of taking care of product inventory. Use this checklist to help enforce an inventory management system that safeguards products through packaging quality control. Mark the packaging for materials as acceptable, defective, or hold and take the appropriate course of action to solve inconsistencies from the onset.

Retail Product Check Sheet

Doing random checks for inventory quality can be helpful in determining how effective the current management system is. Moreover, empowering employees to regularly check inventory quality can not only help in detecting signs of potential discrepancies, it can also save time and effort in validating inventory lists. This digital check sheet can be used on any mobile device and can also include best practice reference images to assist with audits.

Inventory Storage Inspections

Inspecting storage facilities whether in store premises or at warehouses and distribution centers can help in making it easier for personnel to authenticate quantities of stocks. Cleanliness, orderliness, and safety of inventory storage plays a vital role in reinforcing inventory management systems onsite.

Storage Inspection Checklist

Inventory management doesn’t only encompass areas where raw materials and finished goods are being sold, but also, where they’re being stored. Use this checklist to conduct a quick walkthrough of inventory storage facilities, and complete a professional report with pre- and post-inspection photos. Properly stored inventory can be easier to check for coherence with inventory lists.

Safe Storage of Goods Checklist

During these times, safety has definitely become one of everyone’s top priorities, especially for global retailers. The safe storage of goods is also crucial to effectively manage inventory, and this checklist can help employees just that. By detecting potential storage rack damage, on-the-ground personnel can better protect the condition of products and prevent wasting valuable inventory.

Safe Food Storage Procedures Checklist

One of the most difficult products to inventory is food because of its limited shelf life, especially for perishable goods. Utilize this checklist to ensure the safe storage of food inventory, whether through dry storage, refrigerated storage, and/or freezer storage. Check out iAuditor by SafetyCulture’s temperature and humidity sensors to monitor conditions in real-time and be alerted when things go out of range.

Retail Supplier Audits

From inventory lists and retail stores to product quality and storage conditions, the inventory management system comes full circle by also auditing the suppliers of raw materials and finished goods, or also known as a supplier audit. Businesses can stay on top of inventory management tasks when they can consistently get the numbers right starting from their sources.

Supplier Audit Checklist

Sourcing components and products is critical in developing an effective inventory management system because it serves as the starting point for most business models. This checklist generally covers the top 5 elements of supplier suitability for providing what you’re looking for—management responsibility, fundamentals, food safety and HACCP systems, manufacturing quality systems, and regulatory consideration.

Comprehensive Audit Checklist

Even though this checklist contains more than 15 sections of specific audit criteria, it is certainly worthwhile to evaluate current and potential suppliers, vendors, and manufacturers of the goods you trade. It can be easier for retailers to manage inventory when they get their sources right and continuously improve their procurement processes.

Supplier Ethical Trade Audit Checklist

Ethically sourced products from suppliers can help implement an effective inventory management system because it sets up businesses for long-term success. Having confidence in the performance of suppliers, especially in terms of labor standards, health and safety, the environment, and business ethics, enables retailers not only to avoid costly litigation but also gain a good reputation. Use this checklist to assess vendors against the four key pillars of SMETA, an audit that focuses on the continuous improvement of ethical performance within supply chains.

Get Started with the iAuditor Inventory Management System

With a globalized economy and the ever-increasing growth of international trade, maximizing and monitoring product inventory is a make-or-break situation for retailers. Any inconsistency or deficiency can cause unnecessary delays, negatively affecting day-to-day processes and customer satisfaction.

Gain unprecedented visibility of business operations using the iAuditor Inventory Management System. With a holistic approach to inventory management, retailers can streamline inventory-related tasks and more—from creating inventory lists to validating raw materials, work-in-process, and finished goods; from inspecting product inventory and their storage conditions to verifying the performance of retail suppliers.


Shine Colcol

SafetyCulture Staff Writer

Shine has been professionally writing about virtually anything since her internship for a digital publisher of niche blogazines. She is passionate about building a culture of continuous improvement in the environmental, health, safety, and quality space through well-researched, engaging, and impactful content.