Pros and Cons of Physical and System Inventory Tracking

Posted on 18th September 2023

---

One of the most crucial steps when running a business is managing your inventory efficiently. It’s a delicate act that involves maintaining the right amount of stock to meet customer demand without overstocking and tying up valuable capital and storage space. In this quest for balance, businesses often turn to two primary methods: physical or system inventory tracking.

So, whether you’re starting a business and looking for the right method, or you run an already established Shopify store and are considering investing in inventory management for Shopify, this article will delve into the advantages and disadvantages of each approach and how you can effectively strike the right balance.

Physical Inventory

Physical inventory, a time-tested method that has been used for centuries, involves the meticulous process of manually counting and verifying each item in stock at regular intervals. Despite its traditional nature, this approach offers unique advantages. According to research, 46% of small-to-medium businesses use the manual inventory tracking method.

Pros of Physical Inventory

Accuracy

When performed diligently, physical inventory counts can be highly accurate. The tactile approach of physically handling and verifying each item enables the quick identification of discrepancies.

Cost-Effectiveness

Small businesses, with limited resources and budgets, may find physical inventory counts more affordable. Unlike expensive software or equipment, physical counts offer a cost-effective solution to accurately track inventory. This approach helps manage inventory efficiently, allocate resources wisely, and make informed decisions based on real-time data.

Immediate Verification

One notable advantage of conducting a physical count is the ability to meticulously identify any damaged or expired items. This enables prompt action to be taken, ensuring their immediate removal or replacement, thus maintaining the integrity and quality of the inventory.

Job openings

Physical inventories offer exciting warehouse job opportunities, providing individuals with a platform to develop and enhance their skills. Whether you’re interested in logistics, inventory management, or supply chain operations, these roles allow people to actively contribute to the smooth functioning of warehouse operations while gaining valuable experience in a dynamic and fast-paced environment.

Cons of Physical Inventory

Time-Consuming

Counting inventory manually is a time-consuming process, which may disrupt normal business operations and necessitate additional labor.

Prone to Errors

Human error poses a significant drawback to physical inventory. Miscounts, misplacement, and oversight can lead to inaccuracies in stock levels.

Limited Real-Time Data

Physical counts typically occur periodically, creating gaps in real-time data. This can result in inventory imbalances and hinder informed decision-making.

System Inventory

System inventory, often referred to as electronic or automated inventory management, leverages software and technology to monitor stock levels, sales, and reordering. It offers several advantages.

Pros of System Inventory

Efficiency

Automated systems can efficiently handle substantial volumes of data quickly and accurately, facilitating real-time inventory tracking and management.

Accuracy

System inventory significantly reduces the risk of human error, ensuring stock levels are more precise.

Detailed Reporting

Users can access an array of data and reports, helping them make more informed decisions regarding reordering, demand forecasting, and the identification of slow-moving items.

Integration

Inventory management systems can seamlessly integrate with other business software, such as point-of-sale systems and accounting software, streamlining overall operations.

Cons of System Inventory

Initial Cost

Implementing an inventory management system necessitates an initial investment in software, hardware, and employee training, which can be particularly burdensome for small businesses.

Technical Issues

System failures, software glitches, or data breaches can disrupt operations and compromise data security.

Dependency

Relying solely on automated systems can lead to a lack of transparency in the inventory management process, making it challenging to identify discrepancies until they escalate.

Striking the Right Balance

While both physical and system inventory methods have their merits and drawbacks, many businesses discover success by employing a combination of both approaches. Here are some tips for successful inventory tracking and management:

Periodic physical audits: Conduct regular physical inventory audits to verify the accuracy of your system’s data. This helps identify and rectify discrepancies before they become major issues.

Invest in training: Ensure that your employees are well-trained in using the inventory management system. Competent staff can help prevent errors and make the system more efficient.

Use technology wisely: Leverage technology to enhance your physical inventory process. For example, employ barcode scanners and RFID technology to expedite manual counts and reduce errors.

Continuous monitoring: Implement a system that allows for continuous monitoring of inventory levels. This provides real-time data to help you make proactive decisions.

Regular system updates: Keep your inventory management software up to date to ensure it remains secure and functions optimally.

Data analysis: Capitalize on the detailed reporting and analytics offered by inventory management systems to identify trends, optimize stocking levels, and forecast demand more accurately.

Bottom Line

In conclusion, the choice between physical and system inventory largely depends on the unique needs and resources of each business. By carefully assessing the pros and cons of each method and implementing a balanced approach, businesses can achieve effective inventory management, ultimately contributing to their long-term success.