What is inventory management software and how it helps businesses

Inventory management may not exactly be the most engaging topic in the world. After all, no one wakes up thinking, “Yes! I can’t wait to count boxes today!”

However, when it works, your whole business feels smooth like butter, and when it doesn’t...Orders go missing. Deliveries get delayed. Customers get annoyed.

One of the easiest ways to get control of your inventory is with inventory management software. Think of it as a super-organised, all-seeing helper.

Now, contrary to popular belief, this technology is not just for a big warehouse space or Amazon-style operations. It can be really beneficial for all businesses alike. We’re talking cafés, boutiques, etsy shops, restaurants. Basically, anyone selling anything.

In fact, by 2032, this industry is expected to hit $4.79 billion. That's because businesses all over are starting to understand the benefits of utilizing this technology.

So today we’re going to break down what this software actually does, how it works, and what features you should look for. Most importantly, we'll talk about how the right inventory management system can save you time, money… and a whole lot of stress. 

Let’s get into it.

What is inventory management software?

Inventory management software is a tool that helps businesses track, manage, and organize their stock. This software gives you a clear, real-time view of your inventory and keeps an eye on your inventory levels and inventory conditions.

There are a few types of inventory software out there:

• Cloud-based: These systems run online, so you can access them anywhere. They’re great for growing businesses or anyone with multiple locations who need to keep an eye on stock control.
• Desktop-based: These are installed on a single computer. They work fine for smaller businesses that don’t need mobile access or real-time syncing.
• ERP-integrated: These are part of larger business systems (Enterprise Resource Planning). Ideal for big companies that want to connect inventory with everything else, like accounting, payroll, and CRM.

Whichever you choose, the core features are usually the same. You can track stock levels, generate reports with metrics like inventory turnover rate, manage purchase orders, and spot trends. 

How inventory management software works

Forget the pen and paper. Ditch the spreadsheets. This stuff updates everything automatically. Here’s how it works:

• Product identification: Each item gets a unique tag, usually a barcode or radio frequency identification (RFID). Scan it, and the system knows exactly what it is, where it is, and how many you’ve got so you can track inventory easily.
• Real-time inventory updates: As soon as something is sold, received, or moved, your stock levels update instantly. No delays. No double-counting. No surprises.
• Purchase order automation: Running low on something? The system knows and can create reorder requests for you. No more scrambling to restock. It just… handles it,effortlessly.
• Centralised inventory records: Everything’s stored in one place. So if you’ve got multiple stores, warehouses, or even an online shop, it all stays in sync. One system. One source of truth.

The best thing is that your POS system and inventory management can be integrated. So every time you make a sale your stock updates automatically.

Key features and capabilities

Stock management software comes packed with features that make your life way easier. The goal is to give you full control and clear insight over your stock. Here's how it does this:

• Inventory visibility: You get a real-time, bird’s-eye view of what’s in your warehouse, on your shelves, or in transit.
• Stock level alerts and reorder points: The POS software can alert you when stock is running low and even trigger automatic reorder requests.
• Inventory optimization and forecasting: By analyzing past sales and trends, the POS software predicts future demand so you order just the right amount of stock, not too much, not too little.
• Asset tracking and inventory valuation: If you've got a lot of assets you'll be able to keep tabs on your products’ worth and movement. This is super useful for financial reporting and ensuring nothing goes missing.
• Reports and analytics: You can pull detailed insights on sales, stock turnover, and more, helping you make data-driven decisions that boost efficiency and profits.

If you want to learn more, check out our guide on inventory forecasting to see how these features can work together to keep your business running smoothly.

Benefits for different business sizes

Alright, so now we know what inventory management software is—and how it works. Let’s talk about the why. Why are so many businesses jumping on this? The answer is simple. It’s because the benefits are real:

For small businesses

If you’re running a small shop, café, or online store, chances are… you're wearing a lot of hats, one of those hats being how to manage inventory in a small business.

Inventory management software helps take one of the biggest headaches, stock tracking, and handles it for you. Here’s how:

• Reduces human error: Manual tracking is risky. One wrong count, one missed item, and suddenly you're short on stock or overbuying. With software, every customer order, delivery, or return is recorded automatically. Fewer mistakes, fewer unhappy customers.
• Automates stock tracking: The system keeps tabs on what’s selling and what’s sitting. So instead of checking shelves or digging through Excel files, you can see everything in one dashboard, updated in real time. This'll help you with ordering new inventory.
• Optimizes your warehouse or backroom space: You’ll know which products move fast (and which don’t) so you can stock smarter. No more cramming shelves with slow-moving items.

For larger businesses

If you're managing a large company, maybe you’ve got multiple locations, warehouses, and a huge product catalogue, the stakes are even higher. Here’s where inventory management software really steps up:

• Syncs inventory across all your locations: Without a central system, stock data gets messy, fast.  This software keeps everything connected. So whether you're dealing with retail inventory management in New York or Tokyo, the info is up-to-date and accurate.
• Streamlines your supply chain: It shows you what’s running low, helps automate reorder point, and even predicts demand based on trends. That means fewer late shipments, better supplier planning, and smoother operations from start to finish.
• Handles complex inventory needs: Got thousands of SKUs? Products with variations? Multiple warehouses? Good inventory software can organize it all, by location, type, status, and more, without you needing to micromanage.

The risks of poor inventory management 

Let’s talk about what happens when inventory management goes wrong.

Because yeah, it’s not just annoying, it can actually hurt your business.

Too much inventory

Sounds like a good problem, right? But overstocking eats up your storage space and locks up your cash. You’re literally spending money to keep things sitting on a shelf. That means higher carrying costs, wasted resources, and slower cash flow. And you’re not alone. Businesses lose $1.77 trillion globally from stockouts and overstocking combined. That’s money down the drain.

Too little inventory

This is where stockouts hit. Customers go to buy something and it’s unavailable. Frustrated shoppers leave. Sales are lost. Loyalty takes a hit. As 43% of retailers admit, stockouts are now pushing up their supply chain costs, too. When your inventory levels are always off, your "inventory days on hand" metric becomes a total guessing game.

Human error

Manual tracking is a recipe for miscounts, missed orders, and messy data. One small mistake can snowball into massive confusion. Shockingly, 58% of brands say they don’t even have 80% inventory accuracy, which means more errors, more delays, and more unhappy customers.

Real-world use cases

Let’s bring this to life. Here are three examples of companies who could have used automated inventory systems to make life easier:

Ecommerce businesses

Let us tell you about Best Buy’s Christmas inventory nightmare in 2011.

It was the busiest time of the year (the holiday season) and online orders were pouring in. But then Best Buy had to make a tough announcement: they were canceling some online orders because they simply ran out of stock.

Customers were furious. Imagine placing an order for a popular gift, getting a receipt and an estimated delivery date, and then being told they can’t actually send it. 

What went wrong? Well, during Black Friday and the weeks after, Best Buy sold tons of hot products. But they took more orders than they could realistically fulfill.

In other words, they accepted lots of orders, likely knowing they didn’t have enough inventory to cover them all. Instead of delaying shipments, they cancelled orders outright, which made things worse for customer trust.

This situation shows a big risk of poor inventory management. Even if you have a website and receipts, customers can’t be 100% sure their purchase will actually arrive.

Many customers likely moved to competitors because of this incident. 

Best Buy’s story is a clear lesson: without accurate, real-time inventory control, businesses risk disappointing customers, losing sales, and damaging their reputation, especially during critical times like the holidays.

Hospitality venues

In February 2018, KFC faced a massive problem in the UK.

They had to close around 900 of their restaurants because their supply chain broke down.

KFC switched delivery partners, the company that brings fresh chicken to their stores. But the new partner hit some early problems. Delivering fresh chicken to 900 restaurants across the country isn’t easy. About 750 outlets didn’t get their chicken on time. Without chicken, those restaurants had to shut their doors.

It was a huge disruption, and KFC was reportedly losing up to £1 million every day.

So, what could they have done differently?

One idea is that KFC might have avoided this mess by having contracts with multiple suppliers. That way, the huge delivery task would be split up and less risky.

Another issue was the new supplier had only one main distribution center. If they had several, it would have been easier and faster to get chicken out to all those restaurants.

This shows how supply chain and inventory management aren’t just about stock on shelves, they’re also about planning, backup, and knowing your partners can handle the job.

When a big part of your supply chain fails, the whole business feels it.

Multi-location retail chains

Nike is one of the biggest and most famous sports brands in the world. But even they have struggled with managing their inventory.

In the early 2000s, Nike lost about $100 million in sales because they couldn’t track their stock properly. They decided to upgrade their inventory software to help predict which products would sell best and be ready to meet demand.

But the new system had bugs and data errors. It gave wrong predictions, and Nike ended up losing even more money.

This shows how important it is to have good inventory management software. It needs to be accurate, flexible, and made to fit your business.

Nike’s inventory issues didn’t stop there. In 2016, their profits took a hit because they had to discount more products due to poor stock control.

Since then, Nike has worked hard to fix their inventory problems by updating their manufacturing processes and using new technology to modernize how they manage supply.

Even with these challenges, Nike remains a global leader, constantly innovating, expanding, and improving how they get products to their customers.

No matter how big you are, managing inventory well is key to staying on top.

Choosing the right inventory software

So, how do you pick the right inventory software? Well, it’s gotta work for you, not the other way around.

And not just now, but as you grow. No one wants to rip everything out and start again next year.

Here’s what to keep an eye on:

1. Scalability. Let’s say your business takes off. More products, more orders, maybe even more locations. Your system should keep up, without slowing you down.
2. Integrations. Your inventory tool needs to talk to your POS, your online store, your accounting system. If it doesn’t, guess what? You’re doing everything twice. Total waste of time.
3. Ease of use. If your team needs a PhD to figure it out, they’re not going to use it. Go for something simple, intuitive, and backed by solid support. Because when tech breaks, you want someone who actually picks up the phone.

Importance of cloud-based solutions

Cloud-based inventory software stores everything online, not on one clunky office computer. That means you can check stock from anywhere without the manual process. At home, in-store, on your phone at the airport. If your laptop dies your data’s still safe. Plus, cloud tools update automatically - no installs, no IT guy needed. Just the latest features, all the time.

What to avoid (e.g. lack of reporting or automation)

Not all inventory software is created equal. Here are a few red flags to watch out for:

1, No reporting: If it can’t show you what’s working and what’s not, skip it.

1. No automation: If it doesn’t have a reorder point for you or update stock automatically, you’re wasting time and setting yourself up for mistakes.
2. Poor integrations. If it can’t connect with your other tools (like accounting software or your retail POS or hospitality POS system), it’s creating more problems than it’s solving.
3. Clunky and confusing. If your team dreads using it, it’s the wrong fit.
4. Zero support. Tech always has issues. What matters is how fast someone helps you fix them.

Conclusion & next steps

That's a wrap. We’ve covered what inventory management software actually is, how it works, the features that matter, and why getting it right is a huge deal.

The bottom line is, good inventory software saves time, cuts costs, and keeps your customers happy.

And when you plug it into your POS system it can be a total game changer.

So if you’re ready to ditch the spreadsheets and stop guessing, check out Epos Now’s POS software. It might just be the thing that takes your business from getting by to flying high.