Inventory Management System vs Inventory Planning System

Introduction

An Inventory Planning System is fundamentally different from an Inventory Management System – they are different solutions to different problems associated with supply chain operations.

However, the solutions are often confused and the terms mistakenly used interchangeably. 

This means merchants (understandably) struggle to choose the right solution for their e-commerce business – or get it wrong entirely. 

We’re here to help. 

This guide will answer these key questions…

1. Exactly what’s the difference is between an Inventory Management System and Inventory Planning System?
2. Is an inventory planning system the right choice for you?
3. What are the most important features of Inventory Planning System?
4. Is an inventory management system the right choice for you?
5. What are the most important features of an Inventory Management System?
6. Which is the right solution for your business? 

What is an Inventory Management System?

Merchants often look for an Inventory Management System when they experience stock issues. But what exactly does an IMS do? 

An Inventory Management System helps you track your goods throughout your entire supply chain, from purchasing to production to end sales and fulfillment. 

It is used to provide an updated view of your inventory, including when…

• a purchase order is placed
• new inventory is on the way to your warehouse
• new inventory is received in the warehouse
• a sales order is placed and the right inventory is reserved for the order
• orders are fulfilled and shipped
• items are returned
• lost, stolen, obsolete or damaged inventory is detected (and stock counts need correcting)

Some advanced Inventory Management Systems also offer: basic warehouse management features such as warehouse location tracking (bin locations within single warehouses), pick and pack quality control, barcode scanning, cycle count, goods out workflow, warehouse transfers and multi-location inventory allocation. 

What is an Inventory Planning System (IPS)?

An Inventory Planning System is a critical tool for modern retailers – but it’s not widely known about. So what does an IPS do? 

An Inventory Planning System gives you reliable buying recommendations based on advanced demand forecasting. It helps you order exactly the right amount of stock, at exactly the right time. It stops you trapping your cash in excess or slow-moving inventory, and ends out-of-stocks. It’s a proven tool to save time, adapt to changing markets and protect cash flow. 

How does it know the optimal quantity of inventory and when to order? An Inventory Planning System bases its calculations on:

• intelligent predictions of how much you’ll sell, factoring in seasonality and promotions
• your current stock levels
• existing purchase orders – what’s already on order and when it’ll arrive
• the lead times of your suppliers (so that POs are placed with enough time to avoid running out of stock)

3 Reasons You May Need an Inventory Planning System

Inventory planning may sound like a niche solution, but the truth is, it plays a pivotal role in your whole supply chain and cash flow. It  solves some of the major challenges of inventory management, which Inventory Management Systems themselves can’t handle. 

Let’s look at five reasons you need an Inventory Planning System…

1. Avoid excess stock and out-of-stocks

Knowing how much inventory of each product you need to meet demand, without tying up your cash in excessive inventory, is a major challenge for SMBs and e-commerce brands – but it’s one an Inventory Planning System solves. 

In the past, you might have tried (and failed) to fix this issue with an Inventory Management System. That’s because you can’t work out the optimal quantity of inventory for your business unless you have reliable predictions of how much you’ll sell and when. An Inventory Management System isn’t designed to forecast sales and customer demand, but an Inventory Planning System is. 

2. Deal with supply chain struggles 

• Delayed deliveries

Due to long-term global supply chain disruptions, it can take much longer to receive goods from suppliers, which leads to lengthy customer delivery times – and results in poor online reviews from unhappy customers.  

To ensure your goods arrive in time, you need to plan smarter. This is where an Inventory Planning System comes in. It factors in the changing lead times from your suppliers, resulting in optimal stock cover. 

• High shipping costs

Container freight rates aren’t at the sky-high levels we saw mid-pandemic, but they have still increased substantially – shipping a 40ft container in 2022 costs six times more than just two years before, according to Statista. 

This, of course, has a massive impact on your profit margins – but you can optimize your container loading with an advanced Inventory Planning System. Once you’re paying to ship a container, it’s essential to maximize the capacity available – or you’re essentially paying to ship empty space. An Inventory Planning System with container loading optimization functionality will make sure you maximize the space for shipping to make your money go further.

• Make your purchasing process easier (and more efficient)

An Inventory Planning System unlocks efficiency across your entire inventory purchasing process. 

While an Inventory Management System only allows you to automatically generate and autofill purchase orders, an Inventory Planning System goes a step further. It tells you which items to order, how much to order (down to the last unit) and flag up when a purchase order needs to be placed to avoid stockouts. This speeds up the buying decision-making process and cuts the risk of human error.  

• Get smarter product insights 

As a modern retail merchant, you must be able to make fast, data-driven decisions. Both an Inventory Management System and an Inventory Planning System offer inventory reporting with product insights. However, not all inventory reports are created equal. 

An Inventory Planning System is specialized in sales forecasting and inventory purchasing planning. It offers forecasting-related insights that can’t be offered by most Inventory Management Systems. For instance, market-leading e-commerce inventory planning system Inventory Planner offers insights such as forecasted profit, past lost revenue, forecasted lost revenue due to out of stock, overstocked items and more. 

3. Optimize your stock across all warehouses

It’s always challenging to get the inventory right for each inventory location when you use a mix of your own warehouses, 3PL and/or Amazon FBA for fulfillment. An Inventory Planning System with multi-warehouse forecasting is the key to ensuring all your inventory is in the best location to maximize revenue.

It helps you allocate the right inventory to the right warehouse by ensuring you purchase the right goods and the right quantity upfront. Automating the complex calculations of future demand for multi-locations saves time, improves accuracy and avoids warehouse transfers and overstock or out-of-stock issues.

8 must-have features of an Inventory Planning System

If the reasons we mentioned above have convinced you that an Inventory Planning System is right for you, you want to be sure the one you choose ticks every box. Here are eight key features you should look out for…

1. Flexible forecasting methods

Predicting how much you’ll sell is fundamental to inventory planning. A good Inventory Planning System must be able to accurately forecast demand for all your products including seasonal and non-seasonal products, retail and wholesale goods, high-value, slow-moving and low-value, fast-selling products. It’s essential that you can customize your forecasting to suit your needs – all too often, for instance, seasonal and non-seasonal products are forecasted in the same way. However, one forecasting method for all items simply doesn’t work. 

2. Able to adjust to rapidly-changing markets and demand shifts 

The last couple of years have taught us the key to success is to quickly adjust to ever-changing customer demand and market fluctuations. Your bestseller can become an unwanted product in just a few weeks because of macroeconomic changes, while a slow-moving item can receive a huge spike in demand thanks to a social media influencer. 

Although it’s never possible to predict all the fluctuations, a good Inventory Planning System should give you the flexibility to quickly adjust your forecasting based on the early signs of an upcoming change.

3. Reliable purchasing recommendations

Reliable purchasing recommendations should be the bread and butter of every Inventory Planning System. But how should you apply the recommendations?

Look for an Inventory Planning System that shows the recommendations in an intuitive way, and helps you prioritize your purchasing decisions if you don’t want to follow all the recommendations. If your budget is limited, look for a system that help you prioritize which items to re-order to maximize revenue.

4. Smart overstock calculation

Overstock has become one of the major post-pandemic challenges for retail brands, after many tried to manage supply chain disruption by investing in ‘safety stock’ that is now, after a drop in demand, proving difficult to shift. Some merchants are afraid to liquidate overstocked inventory and risk being hit again by a supply chain curveball – but clinging on to stock is a huge threat to cash flow. 

You probably already know if overstock is an issue for you, but do you know the true extent of the problem? Do you have the data that shows exactly what’s contributing to it? You need an Inventory Planning System that can help you understand exactly what’s tying up your cash and can identify excessive inventory before it becomes an issue. Your system also needs to let you quickly adjust your overstock calculation as soon as supply chain and customer demand start shifting again. 

5. Streamlined purchase order process

Look for an Inventory Planning System that lets you automatically create purchase orders from purchasing recommendations. Be sure your system factors in vendor constraints (such as case size and minimum order amounts or value). This can save valuable time and reduce human errors. 

6. Multiple warehouse forecasting

Purchasing the right inventory for each warehouse is the key to keeping your inventory levels right across all locations.

Go for an Inventory Planning System that offers multiple warehouse forecasting and inventory planning functionality, so you can easily determine how much inventory and when it’s needed for each warehouse. 

7. Intuitive inventory reporting

It’s important your inventory reports give you the specific insights you need to make informed business decisions. You also need the bespoke metrics that meet your needs. 

Make sure your Inventory Planning System gives you customizable reporting functionality. You need to see performance by location, category, brand, vendor, and other views to make sure you’re staying on top of what’s working and what’s not. Compare recent performance to the prior period or to last year at the same time to see where adjustments need to be made.

8. New product forecasting

Inventory planning for new products is challenging because of the lack of historical data. However, some advanced Inventory Planning Systems have smart workflows to forecast demand and make purchasing recommendations even for new products. For example, you can “borrow” the sales history of an existing item if you expect the new item to perform similarly. 

5 Reasons You May Need an Inventory Management System

Unlike an Inventory Planning System, an Inventory Management System is designed primarily to solve tracking-related issues. 

Let’s look at five reasons why you might need an Inventory Management System…

1. Inventory tracking inaccuracies

Manual inventory tracking procedures are prone to errors – it’s all too easy to type a wrong SKU into a spreadsheet, miscalculate the current inventory level or forgetting to add on-purchase inventory. 

If you’re experiencing inventory inaccuracies because of manual processes, an Inventory Management System can be the right solution for you. 

2. Multi-channel inventory sync 

If you’re selling on multiple sales channels such as Shopify, Amazon, eBay, B2B platforms, you want your inventory levels to be updated automatically and in real time across all the channels to avoid any discrepancy. 

This is where an Inventory Management System can help. However, be aware that if your inventory system doesn’t seamlessly integrate with all your sales channels, or if it slows down when your order volume spikes, you may not be able to fully rely on multi-channel syncing. Make sure the system you choose has native connectors to all your sales channels and is built to cope with high order volumes, so you don’t need to worry about peak season sales or outgrowing the system. 

3. Inventory visibility 

To dispatch orders quickly, you need to locate or identify stocks in your inventory locations quickly. Inventory that is incomplete, difficult to find or missing is sure to damage your bottom line.

The solution is a real-time Inventory Management System, allowing you to track all the inventory once it’s received in your warehouses. 

4. Multi-location inventory management

While Inventory Planning System helps you buy the right inventory for each location, Inventory Management System allows you to manage inventory across multiple locations once the inventory is in the warehouse. 

Multi-location Inventory Management System will update inventory levels across all your locations to reflect in real-time any stock movements or allocations in your company, allocate the right inventory to a sales order and transfer inventory from one location to another.  

Check out Brightpearl’s Automated multi-location inventory management.

5. Inventory shrinkage and obsolete inventory 

Inventory shrinkage due to lost, damaged, or stolen items can result in costly consequences such as overselling, sending faulty products to customers and incorrect inventory planning, if the loss is not identified and tracked properly. 

Obsolete inventory includes products or materials that remain unsold or unused and become obsolete, or past their expiry date. As the inventory tends to accumulate over time, it can get ignored or forgotten by inventory managers who don’t use a FIFO (first in, first out) method. As new stock keeps coming in, expenses and material wastage increase. 

To avoid inventory loss and obsolete inventory, it’s critical to carry out regular cycle counts. An Inventory Management System with flexible cycle counting functionality can be a good option as it’ll prevent you from running time-consuming full inventory counting every time. 

7 must-have features of Inventory Management System

If you’re certain an Inventory Management System (IMS) is the best option for you, you should choose the precise solution carefully. Here are seven key features you should look out for…

1. Real-time inventory sync

This is a feature every Inventory Management System worth its salt should offer. It must show you exactly what you have and where it’s located. It also needs to reflect in real-time any stock movements or allocations when:

• a sales order is placed, fulfilled, shipped, and returned on any sales channel
• a purchase order is placed
• new inventory arrives in the warehouse
• inventory is transferred from a warehouse to another
• stolen, damaged or lost merchandise is reported

2. Multi-channel inventory management

In an ever-evolving retail landscape, a multi-channel approach to sales  is critical. However, it means your Inventory Management System must be able to seamlessly integrate with major e-commerce platforms like Shopify, Amazon, and B2B portals as well as shipping and fulfillment partners. It also needs to have a robust API and trustworthy partner network that allows you to build any custom integrations in a short amount of time. 

3. Inventory reporting 

Information is power – and as a modern retail merchant, you can’t afford to not have advanced inventory reporting at your fingertips.Unlike an Inventory Planning System, an Inventory Management System is highly unlikely to offer any forecasting-related reports but it can still give you automated inventory reports with useful order-based metrics like revenue, AOV, fulfillment fees andCOGS (cost of goods sold).

4. Purchase order management

A good Inventory Management System will let you: 

• Generate and autofill your purchase orders
• Centrally store all your supplier details
• View your transaction history with each supplier
• Automatically update future inventory levels once a purchase order is placed and received

5. Barcode scanning

Barcode scanning will help you track goods in and out in your warehouses more efficiently. Go for an Inventory Management System with a barcode scanner if you want to speed up inventory tracking and reduce human errors. 

6. Cycle count

Cycle count is a useful method to avoid inventory loss and obsolete inventory, correct inventory discrepancies and identify shrinkage. 

Not every Inventory Management System offers cycle count features, but if you run your own warehouses, it’s highly recommended to choose an Inventory Management System that allows you to efficiently run cycle counts. Look for features that take as much pain out of the manual, time-consuming cycle count process as possible, including running stocktakes by warehouse, bin location or product group. 

7. Multi-location inventory management

Not all Inventory Management Systems have multi-location management capability, and some systems may have more advanced features than others. Look for features like:

• Updating inventory levels across all the locations in real-time
• Picking the best inventory location for a specific order based on available stock, sales channel, and/or delivery distance
• Partial fulfill available items from one warehouse and the rest of the order from another location
• Automatic warehouse transfers when the inventory level in an warehouse hits the minimum threshold