Inventory Management Best Practices

What you need to know in order to successfully implement inventory software with barcode based capabilities.


Although the upgrade to inventory software or implementing a new system might seem overwhelming, this guide will help make the process a breeze. We have gathered the best practices from thought leaders, customers, research, and our own experiences, to provide you with useful information for getting started.

The most important aspects to consider before implementing an inventory system are:

  • Types of inventory systems
  • Know what inventory you have
  • SKU numbers and UPC codes
  • Scanning equipment (if applicable)
  • Units of measure
  • Location management
  • Proper reporting criteria

Types of Inventory Systems

From a capabilities standpoint as well as budgeting, you’ll need to know what kind of system you actually need. At a high level there are dozens of inventory systems that appear to be the same, but in fact are completely different. Yes, they deal with management of inventory and are software based, but the functionalities and modules that make up the system vary. Some of the most common types are MRP (Manufacturing Resource Planning), WMS (Warehouse Management System), and Inventory Management (Inventory Control) Systems.


This robust system is for companies focusing on improving manufacturing operations, production scheduling and forecasting, and supplies coordination. Inventory control is a core functionality of the system, but tasks performed in MRP systems focus on raw material deliveries and assembly/sub-assembly processes at the enterprise level.


Defined loosely, a warehouse management system helps you control and oversee complex warehouse, order, and distribution business processes. Terms that characterize this type of system are direct put away, purchase orders, order releasing, and picking.


This type of system is more basically and narrowly defined, as it deals with the tracking and tracing of inventory quantities and locations (or bins). They typically support purchase orders, receiving, sales orders, and shipping of tangible goods, but may not support raw tmaterial manufacturing.

Know What Inventory You Have

It is imperative you can describe your inventory when implementing an inventory system. The ability to track serialized products or items with expiration dates is not going to be a problem. However, not knowing whether or not these abilities should be a system requirement for your business prior to implementation is. Same goes for functionalities such as batch control or lot tracking. You need to do your homework and target systems that specifically perform the inventory tracking that matches what you have. Additionally, including these sort of functionalities in a system can add unnecessary complexity and cost if the solution doesn’t really need them.

What are SKU Numbers and UPC Codes?

If you’re focused on keeping track of inventory in storage or within your company, you’ll want to track SKU numbers. These are the barcodes you see on virtually every product when you’re shopping. SKU numbers contain critical information such as manufacturer, description, material, size, color, packaging, warranty terms and much more.

You can use SKU numbers for both tangible and intangible goods. Examples of tangible goods include stock inventory or raw materials. Examples of intangible items include anything involving billing, such as project duration or warranty length.

SKU numbers can be four to eight alphanumeric characters. They should begin with an abbreviation related to your product (e.g. FRU for fruit). Never start a SKU with a 0 because this will cause errors in many database and spreadsheet programs. You should also avoid using special characters and numbers that look similar to letters (e.g. O, I, and L) to minimize confusion and data processing errors.

UPC codes are similar to SKUs but they’re used by manufacturers when they are creating products from scratch. There are licensing costs involved with UPCs that SKUs don’t require.

Example of SKU Number
Choosing the Right Barcode Scanner

Considerations When Choosing Barcode Scanning Equipment

Depending on your needs, you might need a barcode scanner for your business. Although this is an optional part of inventory management, these devices allow you to eliminate data entry errors, and process inventory information in real-time.

Below is a brief overview of the major barcode scanning technologies on the market and how you can choose the right scanner for your business.


If staff need to take inventory without being tethered to a computer, wireless scanners are ideal for your business. Even if your computers don’t support wireless networks, the scanner docking station handles the communication between devices.

Scanners equipped with Bluetooth enable syncing up to 32 feet from the base station. Some cordless barcode scanners are equipped with batch memory which enables you to sync data when the scanner is returned to its base station. Direct scanning capabilities allow you to connect to any Bluetooth device without being docked.


Whether you’re working in a fast paced environment, outdoors, or in a large warehouse, having a rugged barcode scanner is essential for your success. The primary differences between standard and rugged scanners are that the former are built with complete seals to protect against dust and moisture. They also have no-slip grips and often have four to six foot drop-resistance.


The two primary barcode scanner technologies you should consider when evaluating scanning solutions are charged couple device (CCD) and laser scanners. The former is designed for environments where employees are near the inventory. The latter is better suited for when employees will be further from supplies and stock.

Aside from range, the biggest difference between the two technologies is cost. CCD scanners cost less than laser scanners however as mentioned earlier, there’s a tradeoff between cost and range.

Which Units of Measure Should You Use?

Before logging inventory data, you’ll need to know the units of measure to be used for your data. Following your industry's’ standard units are essential for for inventory management because you want to make sure vendors and buyers are on the same page as yourself.

The most common units of measure across industries are piece (“PC”) or each item (“EA”). These can be worded as box, carton, case, etc. You can also use other units of measure such as pounds (lbs.), feet (ft.), gallons (gal.) and more. For those times when a vendor or customer needs different units, you can always use conversion factors adjust the measurements accordingly.

When logging inventory data remember to use uniform styles throughout your records. For example if you use pc once in your records, then you shouldn’t write Pc, or PC afterwards. As a rule of thumb, it’s best to keep abbreviations as lowercase text.

Units of Measure for Inventory Management
Classify Your Inventory Locations

Ways to Classify Inventory Locations

Whether you store inventory in one room or across multiple areas, your supplies and materials are useless if you can’t access them. Tracking inventory is more than just writing the location and quantities of items. Before implementing your inventory management system, you need to establish organized procedures on storing inventory so you can get the most from your system. Below are overviews of the most common location-based inventory tracking methods:


Many companies fall under this category because they use paper and pen rather than barcodes for data tracking. Informal systems are best described as a filing cabinet. When an item is put away, it’s up to the employee to remember where the goods are stored and the quantity of the SKU. Informal inventory tracking systems are sufficient for small companies with minimal stock and one person managing the inventory, but for larger projects you’ll need something more organized.

Fixed Locations

A better inventory management method for small businesses is the fixed location system. This involves putting every SKU in its own section of the warehouse. The biggest shortcomings of this system is that it’s difficult to determine where stock inventory should be stored. As the resources are used, the next major issue is empty space as the units are depleted.

These systems can work for smaller companies because the system is simple to implement and use. Keep in mind that if scaling is a concern, you’ll want to use a barcode based inventory system.

Part Numbers

Part number systems provide the best aspects of fixed location systems without the extensive inefficiencies. This system consists of assigning locations based on the sequence of part numbers (i.e. A123 goes before B123).

The best example of this system is department stores which have barcodes on the price labels. These tags show the location of goods within a building. For general inventory purposes you just need to understand that part number inventory management allows you to have granular control over which items stock is assigned to and where it’s located within each building. Despite the advantages of this system, the biggest drawbacks include the fact that part number inventory systems are more complex than the previously mentioned systems.

Using reports to gain insights

Making Sense of Operations

It’s one thing to keep track of your inventory but it’s another to actually make sense of that information. Before implementing inventory software you need to ensure that you have clear objectives on what you want to get from inventory management.

Below are a few questions you should consider when evaluating a product's reporting capabilities:

  • How do I measure performance across my business?
  • Am I able to see all inventory value and cost information from a central location?
  • Are staff able to locate inventory when it’s needed?

Although most inventory management systems have reporting capabilities built in, many off the shelf solutions set limits on the numbers and types of reports you can generate. If you can’t get the insights you need about your business, then the software isn’t a good fit for you.

Inventory Reports

The backbone of any inventory management system is the inventory valuation report, which is a summary of your inventories value. In these reports you should track the: item name, description, unit price, quantity on hand, average cost, stock value, percent of total inventory value, and sales price.

History reports are essential to inventory management because they show the quantity sold, sales amounts, and gross profit dollar amount of your stock. These reports should contain: history date, customer code, inventory ID number, stock description, part number, location, quantity change, and the customer name.

Physical inventory reports are essential for your business as they can be a key component of your tax reporting. These reports should contain: inventory location names, the number counted, the inventory ID numbers, stock description, stock item numbers, physical inventory dates, and the physical inventory location codes.

Facing your Challenges

Your business isn’t like any other, so why limit yourself to using cookie cutter reports? The ability to customize reports for your exact needs is essential to successful inventory management. Even if you don’t have complex projects at the moment , you should always be prepared for rapid growth.

Choosing the Right Inventory Management System

It’s impossible to keep accurate records by hand. Digital inventory management systems enable you to make the most of limited storage space while still meeting customer demands.

Barcodes aren’t limited to the peel and stick style that you’re probably familiar with. If your inventory is subject to harsh environments, you can use hard plastic and metal tags to ensure you can track supplies regardless of where they are.

Evaluating inventory management software can be overwhelming due to the variety of products.Although we’re a little biased, we feel you’ll choose Passport as our software can handle any challenge you throw at it. Whether you you’re doing straightforward inventory or tracing specialized stock, you can do it all with Passport.

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