A warehouse featuring an RFID inventory management system. Is your business ready to use an inventory management system? Here's what you need to know on understanding inventory management systems.

Your Primer on Inventory Management Systems

Even if all you do is reorder stock when you see the shelves looking empty, you have an inventory management system. But the “wait-until-stock-is-low” approach is not recommended for any but the smallest of operations, or those who want to avoid stock-outs, missing inventory and angry customers.

For the rest of us, it helps to get a better understanding of inventory management systems, especially those more advanced, to help determine which works best for our needs.

2 Types of Inventory Tracking Systems

Periodic Inventory Tracking

As the name implies, periodic inventory tracking means tracking inventory at certain time intervals, primarily through manual inventory counts. The idea is to record inventory counts at the beginning and end of a predetermined time period (the count at the end of a period is the count for the beginning of the next period) and adjust inventory levels accordingly.

Periodic inventory tracking can be labour-intensive and usually means the disruption of other business operations. Discrepancies in counts are also difficult to track due to the time interval between counts.

Perpetual Inventory Tracking

Again as the name implies, perpetual inventory tracking systems are those that track inventory on an ongoing basis. Every time inventory is bought, sold, moved within a warehouse or spoiled, it is added or subtracted from inventory accordingly. Perpetual tracking offers “real-time” inventory counts, which helps to maintain JIT ordering and gives sales teams confidence that orders can be filled. 

2 Types of Inventory Tracking Technology

In addition to recording counts with a pen and paper, there are two main types of electronic inventory tracking technology:

Barcode Readers

Barcode readers update inventory information every time a product code is scanned by the reader. Barcode systems are relatively inexpensive and can streamline both periodic and perpetual inventory tracking due to the ease, speed and accuracy of tracking individual inventory items.

Radio Frequency Identification (RFID) Systems

With RFID tags affixed to your inventory, you can use active and/or passive RFID inventory tracking. Active systems employ stationary RFID readers located throughout a warehouse to track the movement of inventory. Passive RFID systems use handheld devices and work similarly to barcode readers.

Due to the need for tags, RFID systems are more expensive than barcode readers. But, especially active systems, RFID offers more accurate real-time inventory information and can help identify inventory theft or damage issues.

To learn more about understanding inventory management systems, check out our recent post “Is It Time To Keep Inventory Across Many Distribution Centres?