What is an Inventory Management System? Definition and Best Software

ims

Illustration by Jennifer Tapias Derch

“The source of almost every problem in my working life over the last year.”

A comment like that is hard to ignore. Especially when it comes from a merchant (who requested to be quoted anonymously) doing over $20 million in annual revenue across six sales channels that span the online-to-offline (O2O) divide

While you might expect their thorn to be one of the commonly cited “top challenges” in ecommerce—like new product development, customer service, generating traffic, price competition, or sales and marketing—it’s not.

For high-growth merchants, managing inventory and orders through an ad hoc combination of spreadsheets, multiple apps, one-off workarounds, and in-house printing and record-keeping can be crippling. Struggles with inventory and order management is a common theme among ecommerce icons like Death Wish Coffee, RIPT Apparel, and Shinesty.

The solution most businesses turn to is automation through an inventory management system (IMS). Unfortunately, the only thing worse than not having an inventory management system is partnering with the wrong one.

Table of contents

What are inventory management systems?

Inventory management systems (IMS) are integrated software programs designed to track products, inventory, orders, and fulfillment both to and from customers as well as with suppliers. To avoid confusion, IMS is often used interchangeably with order management system (OMS), and the two phrases are synonymous.

Whatever the acronym, by consolidating all this data into a single location synced with your ecommerce platform, an IMS partner provides sales, support, and asset management through a variety of features, including:

  1. Order management
  2. Inventory control
  3. Multi-channel sales alignment
  4. Comprehensive reporting and analytics
  5. Volume forecasting
  6. Purchase order generation
  7. Multi-warehouse syncing
  8. Reorder point purchasing
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High-volume ecommerce companies use IMSs not only to avoid inventory shortages but also to streamline and optimize their entire order fulfillment process.

Centralizing your inventory and order data is especially important for companies that sell across multiple online and offline channels, utilize multiple warehouses, or depend on kitting—bundling multiple items, often from multiple locations, which are sold and shipped as a single product.

Fluctuations in demand, seasonality, supply-chain logistics, and a product’s natural life cycle can all make managing inventory feel like trying to hit a moving target. Add to those challenges the complexities of global ecommerce—namely, different taxation laws and currencies—and moving beyond spreadsheets and ad hoc workarounds become non-negotiable.

In other words, an IMS is an integral part of scaling your ecommerce operations through third-party logistics (3PL).

For inventory and order management, however, confusion often arises over another 3PL subcategory.  

“The most common question we get from merchants is whether they need an inventory management system (IMS) or a warehouse management system (WMS). The first step is almost always an IMS, because the right IMS can create huge wins in efficiency immediately.

A WMS, on the other hand, becomes necessary when a merchant needs to oversee multiple fulfillment and distribution centers, automate receiving and sending, outsource their “pick, pack, and ship” needs, and handle returns.

Still, understanding what an IMS is—and why you need one—is only the first step. And a small one at that. In fact, for most people reading this, what and why are hardly the issue. 

Types of inventory management solutions

Spreadsheets

At the most basic level, business owners can manage inventory through a simple spreadsheet on your computer. This is only really a solution for small businesses—and even then, it’s rarely a good one. Data entry via spreadsheet is prone to human error. 

If you’re shipping 10 to 20 items per month and you’re a one-person operation, keeping track of sales orders in your own spreadsheet can be the real bootstrapper’s choice. It’s time consuming, and as you grow, you’ll quickly find that efficiency grinds to a halt while you go through the manual process of inventory management.

Basic inventory management tool

These are the systems that usually come bundled with ecommerce cloud apps. They’re minimal, rather than extensive, but in the early stages of your journey they could be the best solution—almost certainly better than using spreadsheets. 

You might also find that fulfillment services or other 3PL providers have IMS features as part of their software solution, so you can manage the stock they’ll be sending for you. They’re not always the most customizable or robust solutions, but serve an important purpose for many companies.

Watch: 3 Signs You Need a 3PL

Dedicated inventory management software

At a certain stage of growth, you’ll need an IMS that’s built specifically for managing inventory. Dedicated IMS systems are a must for retail and ecommerce brands shipping higher volumes of goods and multiple SKUs. 

They’ll almost always have a wide range of integrations with leading ecommerce platforms like Shopify, and onboarding should be smooth, whatever your previous setup was.

Enterprise resource planning

These are aimed at the biggest clients, with national or global customer bases, shipping thousands of products across thousands of SKUs. Think grocery, wholesale, and other large organizations. 

Enterprise IMS systems will often be part of a wider-ranging ERP system, which manages core business processes across a whole organization. (Think supply chain management, project management, sales, HR, and so on.)

While they are aimed at large corporate clients, some of today’s ERPs are flexible enough to cater to small and medium-size businesses. So don’t write them off if you’re not a big player—they could still offer some big efficiency gains for your store.

Best inventory management systems

  • ShipBob
  • ShipHero
  • Shopventory
  • Stocky
  • Katana
  • Orderhive
  • NetSuiteERP

ShipBob

Best for direct-to-consumer (DTC) ecommerce brands.

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ShipBob is a 3PL service allowing sellers to store inventory in its network of warehouses, with ShipBob managing fulfillment on their behalf. It acts as a single source of truth for your orders and inventory, so you’ll always know where things are and where they’re going. 

One of the main perks for ShipBob customers is the fact you can strategically split your inventory across their warehouse locations, reducing the cost and shipping times involved with fulfillment. All orders benefit from two-day shipping across the continental US—a serious advantage for customer satisfaction. Alongside this, you’ll find a full suite of warehouse management features like product warehousing, bar code scanning, distributed inventory, FBA preparation services, and more. 

Key features:

  • Easy integration with your Shopify store and ShipBob
  • Automated order fulfillment and tracking information sync
  • Same-day shipping
  • Affordable two-day coverage of the entire US (and a growing international footprint)
  • Simplified, transparent pricing based on delivery speed

Price: À la carte for each service, so pick what you need.

ShipHero

Best for growing and high-volume brands

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ShipHero is a multichannel IMS that makes sure your inventory is never out of sync. With real-time information about stock levels, sellouts, and replenishment, it ensures you won’t be caught unawares when things get busy. 

The IMS side of ShipHero works alongside its warehouse management software, offering multi-warehouse order allocation, kitting, lot and expiration code tracking, and more. A range of automation functions make life easier for anyone managing recurring tasks, too. ShipHero works on a pay-as-you-go model, so there’s no long-term commitment.

Key features:

  • Direct integration with Shopify 
  • Mobile picking, real-time carrier rate shopping, and bulk ship
  • Personalized dashboard reports like Picker/Packer efficiency, COGS, and sales by SKU
  • Bar code recognition, ticket scanning, and RFID
  • Multi-channel management 
  • Supplier management functionality

Price: From $499/month.

Shopventory

Best for retail, food, and apparel brands selling online and in-store

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Shopventory is a centralized cloud-based IMS that lets you manage and sync multiple storefronts and locations. Everything is updated in real time, and your whole inventory can be integrated with various POS and ecommerce systems. 

There’s also a range of automation, including purchase orders (when certain inventory items reach minimum/maximum levels) and smart inventory balancing across locations. It also has native applications for iOS and Android, providing bar code scanner functionality so you can check stock on your mobile device. 

Shopventory shines when it comes to accurate inventory data: a rich suite of reporting tools helps you understand what’s going on with your stock throughout the supply chain. You can see how many items you’ve got on the shelves, how this Black Friday compares to last year’s, or how profitable a certain product range is.

Key features:

  • Reporting by location and channel 
  • Automated purchase orders
  • Direct customer invoicing 
  • Simplified stocktakes

Price: From $99/month.

Stocky

Best for Shopify POS Pro customers and first-time IMS users

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Stocky is Shopify's own inventory management system, specifically serving users of Shopify Point of Sale (POS). If you’re using it to sell in person, Stocky will act as your IMS, handling all things inventory, so you can focus on the sales, not the stock keeping.

You can use it to create and manage purchase orders so your supply chain stays healthy, and replenish stock easily when you’re selling out. There’s a range of robust analytics, helping you understand which SKUs are performing best, and providing insights that you can use to inform your sales strategy. It also helps you synchronize inventory across digital channels like Amazon and eBay. 

For businesses that aren’t ready to invest in an external IMS just yet, but want to move past manually updating stock in a spreadsheet, Stocky might be the perfect solution.

Key features:

  • Create and manage purchase orders from one place
  • Simplified demand forecasting based on rate of sales
  • Easy stock transfer capability 
  • In-depth reporting and analytics

Price: Free with a Shopify POS Pro subscription.

Katana

Best for small manufacturers selling their own goods

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Katana is an IMS designed for sellers manufacturing their own products. You can use it to manage raw materials through production into the final product, all the way through to fulfillment to the customer. It’s an extensive ERP (enterprise resource planning) software that handles the whole production line, soup to nuts.

So you’ll use it to track your incoming resources, your production operations, and your outgoing products. It even handles floor-level operations like task planning and information management—all the features you need for manufacturing excellence. Behind all this is a powerful planning system that helps you maximize efficiency and profitability through the whole production chain.

Key features:

  • Automatic data movement between Shopify and Katana
  • Dashboards for visual production planning
  • Real-time inventory control
  • Floor Control app to create and set up shop floor operators 
  • Stock sync between Shopify and Katana 
  • Multiple Shopify store support

Price: $99/month.

Orderhive

Best for growing ecommerce brands wanting to scale their operations

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Orderhive is an IMS that’s focused on automating your inventory operations. It includes a ton of workflow automation that can greatly reduce the amount of manual labor you have to do across a range of business functions. 

This can include the creation of shipping labels, updating stock, organizing products, and shipping out orders. With Orderhive, you’ll be able to see your stock movements through multiple channels in real time. It integrates with a ton of ecommerce platforms and shipping providers, and can make some smart decisions on your behalf instead of putting the burden on you to micromanage everything.

Key features:

  • One centralized inventory software for all back end tasks 
  • Supports multiple Shopify stores in one Orderhive account
  • Automated inventory updates, assignment and splitting, folderization, and fulfillment
  • Real-time analytics and reports of your Shopify store’s inventory, orders, and customers

Price: From $49.99/month.

NetSuite ERP

Best for large companies operating multiple warehouses 

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NetSuite Inventory Management is part of Oracle’s ERP business management suite. It’s a multi-channel system that shows a real-time overview of your inventory across multiple locations. It covers your stock across retail stores, pop-up shops, 3PLs, warehouses, and more—the entire operation. 

You can trace activities through every part of an order in granular detail to see where inefficiencies might occur. Or you can gain insight into the bigger picture, optimizing inventory levels based on demand planning and sales forecasts. Netsuite IM is available to Netsuite customers and has an annual license fee and a one-time setup charge. 

Key features:

  • Easily track inventory across multiple locations 
  • Real-time, company-wide inventory visibility across warehouses, retail stores, and 3PLs
  • Lot traceability to track products from raw materials to shelf
  • Automatic alerts for replenishment
  • Auto assigns inventory count tasks to floor staff to improve inventory accuracy
  • Inventory tracking using lot and serial tracing

Price: Custom, depending on requirements.

How do you pick an inventory management system?

“The source of almost every problem in my working life over the last year.”

The merchant who shared this with me—and chose to remain anonymous—wasn’t talking about not having an IMS. They were talking about having picked the wrong IMS:

“[The IMS provider has] been the source of almost every problem in my working life over the last year. I’ve spent the last six months working on making sure our business is not dependent on a partner like that again.”

Just a small sampling of the problems they faced include:

  • IMS infrastructure that was unable to support their high inventory and order volumes
  • Custom workarounds the merchant built for themselves to eliminate 500 and 504 errors
  • Reported bugs the IMS refused to fix or commit timetables to fixing
  • Support staff that spent more time “deflecting responsibility than helping resolve issues”

To help you find a solution, Shopify Plus’ Partners Program has vetted a host of IMS providers. This list is certainly not comprehensive, but these are IMSs that, when aligned with your business’s size, growth trajectory, and industry, offer a starting point you can trust.

Finding the right inventory management system

IMSs do more than manage orders and prevent stockouts. They streamline those management processes to save you time, money, and heartache. Logistics isn’t the sexiest growth topic. But it is one of the areas that dramatically affects your overall performance: for good and for ill.

Choosing the right IMS can mean the difference between more sales and happier customers … or the source of almost every problem in your working life.

To save yourself from that fate, be sure the IMS—or any 3PL—you vet provides you with:

  1. Financial proof of long-term health and viability
  2. Recommendations and reviews highlighting both the good and the bad
  3. Integrations with accounting software like QuickBooks
  4. One-on-one referrals to contact their existing customers
  5. A track record of success in your industry and at your order volume
  6. Price quotes that include special features like gift wrapping, returns, and purchase orders, as well as how they monitor and deal with expiratory products (e.g., food and beverage)

Lastly, nothing can replace connecting with the IMS face to face to make sure everything checks out.

Inventory Management System + Software FAQ

What is an inventory management system?

An inventory management system is software designed to track products, inventory, orders, and fulfillment both to and from customers as well as with suppliers. 

What is inventory management software?

Inventory management software helps businesses control inventory levels and order fulfillment. There are many components of inventory management that the software enables users to track and optimize.

What are the types of inventory management systems?

  • Manual inventory management systems
  • Periodic inventory system
  • Perpetual inventory system

Why are inventory management systems important?

Inventory management systems are important because they can help forecast seasonal inventory, prevent over selling, reduce overall business costs, and improve supply chain operations.

About the author

Michael Keenan

Michael is a SaaS Marketer and SEO and founder of Peak Freelance. He’s inspired by learning people’s stories, climbing mountains, and traveling with his partner and two Xoloitzcuintles.