Automated Inventory Systems

By: Lexi Hartman

CIS 305



            In today’s growing market many businesses are turning toward automated systems to perform their everyday tasks.  Automated systems can replace the cost and time consuming processes that were once completed by hand while providing companies with more accurate data.  One automated system that is becoming more popular is the automated inventory system.  This system is used to track the merchandise and goods of retail stores, grocery stores, hardware stores, etc.  In this paper I will discuss the background of automated inventory systems, including what they are, how they work and what type of data and information that they provide for businesses.  I will also give some examples of companies that have automated inventory systems and how they have changed their business.  I will provide the advantages and disadvantages of automated inventory systems and the affect they can have on a businesses’ growth and competitive edge.  


            Automated inventory systems play a large role in today’s businesses, especially the retail industry.  This is because businesses want the ability to access and organize data in a quick and efficient manner.  With an automated inventory system, businesses can rely on computers to do tasks that were once performed manually, such as inventory checks and product sales.  These tasks can be very overwhelming for businesses to do manually because of their size, number of stores, and their product diversity.  This can all be changed, though.  With automated inventory systems these processes can be handled in a timelier manner and also be more accurate and reliable than ever before.

            Automated Inventory Systems are specialized software that allows businesses to input their inventory and track the products that are delivered and sold.  At the time of arrival the products are registered into the database and are added to the list of current inventory.  They can track the depreciating inventory by using barcodes and scanners on all the products being sold. This is done with special software that instantly takes the product out of inventory at the point of sale or POS.  With point of sales software, products are subtracted from the inventory count the moment they are sold instead of being deleted manually at a later time.   This process allows data to be more accurate than the previous process because the business knows exactly how much inventory they have in stock at any given time.  If the inventory becomes low, the business is notified by the system to order more inventory. 

This is a great advantage over tracking inventory manually because usually a business only takes a complete manual inventory count a couple of times a year, which leads to a great deal of over and under stocking.  With a manual inventory count businesses try to predict which products will sell better than others and the location they will sell better at.  Although this does work ok, predictions are not always correct, which can cause problems if a product doesn’t sell as well as intended or a product sells better than expected.  With inventory software, businesses can now analyze the information provided to determine which products are selling and which are not.  The software packages allow businesses to take the guesswork out of managing their inventory because it makes instant updates to the inventory and also makes more accurate sales predictions for the future.  When using an automated inventory system a business can determine what products they should purchase more of, what products they should not, and how much should be ordered of each product.  The automatic inventory systems will also alert you when products need to be ordered.  Some inventory system software will even send the order directly to the supplier once the inventory level of a product drops to a certain number of a particular product.  This helps businesses become more efficient by increasing their sales while decreasing their inventory supply.

In today’s business environment, it is almost vital that businesses switch to an automated system for inventory management because manual inventory can lead to a number of errors, which will hurt the company in the future.  At Southern Utah University in Cedar City, UT, the bookstore was looking for a way to get rid of their manual textbook inventory system because it was becoming very inefficient and time consuming (Kerner, University). At that time the bookstore did their inventory manually and used electronic cash registers.  They had no type of computer system that would link their inventory to their product sales.   The bookstore also operates a nearby convenience store that is open during the university’s annual summer Shakespeare festival. 

To install the new system, they hired a company called BUDGETText.  BUDGETText is a wholesale textbook distributor, but they also specialize in the design of software for textbook management (Kerner, University).  The bookstore hired BUDGETText to install a computerized inventory system that linked directly to the book publishers.  This allowed the university to instantly send orders out to their publishers when more textbooks were needed.  The University received decoders, card readers, scanners, receipt printers and cash drawers to automate their inventory and sales processes (Kerner, University).  Now, after the system implementation, each item has a detailed description at the point of sale rather than just the book category.  This includes the book title, the author, and the sale price during the transaction, the total sale, the amount paid and how much change was given, if any.  All of the bookstores items have barcodes and are now tracked at the point of sale and are instantly subtracted from the system.  With the new system Southern Utah no longer has to worry about creating errors through their manual inventory (Kerner, University). 

The new inventory system connects the inventory directly to their sales so everything is instantly updated, which saves the university time and money.  Because the university no longer has the manual labor of checking inventory they have a more accurate account of what items are in stock.  Their system is also directly connected to the Internet, which provides students with the opportunity to purchase their textbooks online.         

While Southern Utah University needed to update their schools’ small but growing bookstore, other companies, such as Recreational Equipment Inc. or REI, were looking to automate their entire Incorporation.  In the early 1990’s REI had come to the conclusion that their manual inventory management was too much for the product managers to handle.  REI is a chain of over a dozen outdoor equipment stores that sell thousands of different products, which include camping, hiking, rafting gear, and other outdoor sports (Santosus, Working).  Analysts, at REI would physically count the inventory at every store and determine a sales plan for the following year.  This process was time consuming for the company and often inefficient.   The results of performing the inventory count manually were hindering the analysts from making accurate sales predictions.  This left inventory problems to be spotted only after they were already in place so they were unable to take preventative measures (Santosus, Working).

 In 1994 REI decided that installing an automated inventory system was the way to go.  That year they started with the first phase of their long-term project, which was to install a software application called E3Trim.  The software, installed by E3 Associates Ltd., allowed REI to have a more accurate account of what items were selling the best at each individual store.  It also gave them the ability to see what products were being ordered, the day-to-day status of those orders, and what products they had in stock at the distribution center.  E3Trim provided REI with automatic comparisons of the company’s sales goals and their actual product sales and performed an analysis every night to determine what products they should purchase more of and give a recommendation.  If the recommendation is accepted, the order list will be sent directly to the vendor via fax.  With just this first phase of the new system in place, REI was able to cut their ordering cycle down form one month to just 14 days (Santosus, Working).

In 1996 REI began work on phase two of their automated inventory system.  This phase was to install a complimentary software application to the E3Trim called E3Slim. The E3Trim is a software application to handle the inventory supply of the entire company; E3Slim is an application to handle the inventory supply at each individual store.  This system is installed at each store and keeps an up to date inventory record through a point of sale software.  When a product is low the system will send an order back to the distribution center (Santosus, Working). 

Now with both systems in place REI can more accurately track their inventory supply, which allows them to spot problems before they occur and set up better sales goals for the upcoming years.  According to Dan McBroom, REI’s project manager, the installation of the E3Trim and E3Slim has increased REI’s sales figures by 3% while decreasing the inventory supply by 14%.  This software helped them to manage their inventory in a more efficient manner and lower their costs.

In both of the cases above installing an automated inventory system helped these businesses increase their sales while lowering their costs just by giving them a more accurate way to manage their inventory.  Automated inventory systems have many other advantages too.  Automated systems are allowing companies to, not only reduce their cost, but also to increase delivery times and their ability to restock their shelves in a timely manner.  This means that customers will not have to wait for out of stock products. Companies can now be one step ahead of the consumers.  These systems increase the productivity of a business while decreasing the downtime, which makes them more efficient for a smaller cost. It also allows them to have a competitive edge in the market.

Employees are able to easily troubleshoot problems that occur because the software will perform data analysis to show the differences between a company’s anticipated sales and their actual sales.  It also helps make predictions for future sales goals.  Having an automated inventory system can help to link departments that were once thought to be isolated from one another.  Even though businesses tend to think of the inventory management, personnel, sales productivity, and client recordkeeping as separate from one another they all share critical pieces of data and with the right software it can help companies see the big picture rather than just the individual pieces.  In turn, this will allow each department to be more efficient in their jobs because it increases the communication. 

One of the biggest, and probably one of the most important, advantages to installing an automated inventory system is that helps businesses focus on their biggest goal, to improve the customers experience at their store.   With this software, companies can have a better understanding of customer demand through the analysis of their sales.  With knowing this companies can provide a quick delivery of these demands.  If customer demands are met instantly then this will increase their satisfaction and they will be more likely to come back to that store in the future.  If they have to wait, because products that they desire are never in, then they will seek other means of getting the products they want.

Even though the advantages of installing an automated inventory system out weigh the disadvantages, there are still a few to be mentioned.  One of the most common disadvantages is that once a company installs the software their employees do not have the proper training or knowledge of the system to retrieve the important information that they want and need to perform their jobs.  This disadvantage does not have to occur though, by providing the employees with the proper training to run the system they will be able to access the information they need.  Another disadvantage is that the software applications are becoming more complex in their design.  This makes it harder for users to understand and work with the systems.  The complexity and interdependence between departments can also cause problems in identifying where a problem occurred, which can often lead to finger pointing between the different departments.   Another disadvantage that can turn up is software glitches.  Software glitches can also cause many problems because they often go unnoticed until it is very large.  So fixing the problem can be a very time consuming.  Although a few disadvantages do exist with automated inventory systems, they are usually things that can be avoided for the most part through proper training and monitoring of the system. 

The advantages for an automated inventory system well exceed the disadvantages and can provide a company with a competitive edge and increase their growth as a whole.  Some of the main ways companies can expand and gain ground over their competitors is by using software that helps them to better understand their customers demands so they can in turn increase their sales of those products while decreasing their inventory by getting rid of products that don’t sell as well or decreasing the quantity that they keep in stock.  All of this together helps the company increase their incoming revenue while at the same time decreasing their costs.

An automated inventory system is software that allows companies to better manage their inventory systems.  They increase companies’ productivity and sales while decreasing their cost and time spent to conduct an inventory count manually.  In the two company examples I provided the addition of an automated inventory system greatly helped their businesses become more efficient.  As technology grows and businesses expand it is becoming more and more obvious that having manual processes to perform tasks are no longer to the company’s advantage.  If they want a competitive edge over companies automating is the way to go.                


Works Cited


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Santosus, Megan. (1997, September). Working Smart. Maximize the Payoff from Information Technology. Retrieved February. 14, 2005, from CIO Magazine,