What does an inventory management system do?

Answered July 15 2019

An inventory management system keeps track of items that an organization purchases to manufacture or deliver its final product or service to its customers. It usually includes an array of hardware, software, and processes to identify and follow an item from the moment it enters a facility to the moment it is either used in a final product or consumed.

You probably think about inventory items as those things that are used by a company to create its product. For example, an air conditioner manufacturer might carry inventory items such as condensers, fans, belts, coils, and refrigerant.

Although those raw materials are tracked in an inventory management system, companies should also be following maintenance, repair, and operations (MRO) inventory. According to Supply Chain Mangement Review, roughly 40 percent of a company’s purchasing budget may be spent on MRO items such as janitorial supplies and maintenance tools.

Components Required

A good inventory management system should contain certain components including an identification system, management software, and standardized procedures.

An identification system can be a manual recording of model or parts numbers in a spreadsheet, a bar coding system that tags each item, or a complex radio frequency identification system that involves microchip tags.

A centralized computer system like a CMMS can be used to record, track, and report the information on an ongoing basis. An integrated inventory tagging system and CMMS can provide helpful insights into real-time inventory data as well as help with making better purchasing decisions.

Finally, a company should have clear, consistent processes in place in terms of tagging, documentation, and reporting requirements so that high quality data is generated. All team members should receive regular training on these processes.


An accurate inventory management system can improve an organization’s efficiency and productivity. When items for both production and MRO activities are ordered as close to just-in-time as possible, a facility reduces the space, management, and costs associated with carrying excess inventory.
In addition, a lean inventory can improve cash flow, forecasting reports, organization, and supplier relationships.