The early years of opening a retail store may involve manually managing inventory. You may use a messy spreadsheet or run around a stock room, pen and paper in hand, to do physical inventory counts.
Your stock levels may not match what’s in your point-of-sale (POS) system, it might take hours to fulfill orders each week, or you can’t replenish bestselling inventory to match demand. Sound familiar?
Your retail business deserves an upgrade. Cue the arrival of an automated inventory management system. This post will highlight its benefits and core features and explain why you need one.
What is an automated inventory management system?
An automated inventory management system lets retailers use tech to automate the flow of goods within their business. Instead of manually managing goods, automated inventory management systems track products in real time.
The system uses software to monitor what's in stock, what's running low, and what needs reordering. Automated inventory management saves time, reduces human error, and improves efficiency.
How automated inventory management systems work
Automated inventory management systems work like smart assistants for businesses. They tap into multiple tools to keep an eye on goods. Here's how:
- Barcode scanning: Each item has a unique barcode. When it’s scanned, the system identifies it and updates the inventory count.
- Software: A program tracks all the products and displays what's in stock, what's sold, and what needs reordering.
- Real-time updates: The system updates immediately when an item sells, or new stock arrives, so inventory is always up to date.
- Reports: It creates reports to show which products are popular, which are not selling, and when it's time to order more.
- Integration: It syncs with other systems, like your POS and online store, so everything connects and runs smoothly.
The benefits of automated inventory management
An automated inventory management system comes with plenty of benefits for retail businesses. Aside from saving you from doing physical stock counts, automated inventory management can boost your retail business in several ways:
Prevent stockouts
With automated inventory management systems, you can view real-time stock data and see how many items you have at any time. You can set up reorder points for specific items that are running low and restock them before they run out.
The system also analyzes historical sales data to forecast demand, helping you order the right amount of stock for busy shopping seasons. Staying on top of your inventory prevents empty shelves and keeps your customers happy.
Reduce costs
You can reduce costs in several ways with an automated inventory management system. First, it minimizes the chances of overstocking or understocking, which can result in wasted resources or lost sales.
Tracking inventory levels in real time means you’ll only order what you need when you need it. This reduces inventory costs and the risk of discounting or disposing of unsold stock. Plus, by automating tasks like tracking and reordering, the system saves time and labor costs, letting your team focus on core competencies.
Accurate forecasting
Instead of guessing at future demand, you’ll have a clear idea of how much stock to order. An automated inventory management system uses data and analytics to predict future sales and inventory needs. It looks at data like past sales trends and seasonal fluctuations to forecast how much stock you'll need in the coming weeks or months. Planning ahead and ordering the right products will help you avoid shortages and excess inventory.
Fulfill orders faster
An automated inventory management system helps you fulfill orders faster by streamlining the process from start to finish. When an order comes in, the system immediately checks if the item is in stock and where it's located. This reduces the time spent searching for products and speeds up the picking-and-packing process.
With Shopify POS, you can tap into the ship-to-customer feature even in-store, turning your physical store into a convenient, endless aisle. In the case of Bared Footwear, if one store doesn’t have a customer’s color or size in stock, staff can close the sale and ship the order to their home address from any store location with stock on hand in one simple workflow.
Plus, email carts let customers consider and finish their purchase online with a preloaded cart sent to their email by store team members.
“These fulfillment options wouldn’t be possible if our store inventory, orders, and checkout wasn’t linked to our online store checkout like it is with Shopify,” says Alexandra McNab, Bared Footwear’s chief operating officer. “It’s a much better experience for the customer and helps secure sales that may have otherwise been lost.”
The system can also prioritize orders based on urgency or customer preference, ensuring that important shipments go out first.
Learn: Inventory Management: How it Works and Tools (2025)
Types of inventory automation technology
Now that you know how inventory automation works, it’s time to understand the technology behind it.
First, you have the capture technology, like barcode scanners and tags that read the data. Then you have the software that acts as the central brain of the operation and makes the data useful.
Here’s the retail technology you’ll encounter.
Barcode systems
Barcodes are the universal standard for everyone in the supply chain. They are low-cost and the most familiar way to track products from the warehouse shelf to a customer’s cart.
Barcodes are having a glow-up moment, moving from 1D to 2D codes that can store more information like:
- Batch and lot numbers
- Expiration dates
- Improved traceability
For example, say you’re selling a perishable item like specialty skincare. A traditional 1D barcode just tells your system, "This is our Vitamin C Serum." But a 2D code on the same bottle can tell your system, "This is our Vitamin C Serum, Batch #A402, which expires in October 2026."
RFID systems
When you need to know exactly what you have, in real time, you graduate to radio frequency identification (RFID). RFID tags can read hundreds of tagged items at once just by walking by with a reader. GS1 data shows that item-level RFID can rocket your inventory accuracy to 95% or higher.
You can’t ask for more efficiency than that as a high-volume retailer. The accuracy that RFID technology provides is what makes unified commerce possible. Knowing what’s on the shelf is the magic behind offering services like ship from store and buy online, pick up in-store (BOPIS).
That’s why RFID adoption is climbing. The RAIN Alliance projects a 20.4% compound annual growth rate (CAGR) for these tag shipments through 2028 as the tech becomes more prominent in verticals beyond apparel.
Perpetual inventory software
A perpetual inventory system connects your capture technology to your retail operation. Every time a sale, return, or transfer happens, the system updates your stock levels and cost of goods sold (COGS) automatically.
No more all-hands-on-deck physical counts that disrupt everyone’s day. You can move to cycle counting, where you check small sections of inventory regularly for accuracy without shutting down operations.
Did you know? Shopify POS natively supports 1D and 2D barcode scanners. Your admin also lets you track inventory across all locations, manage inventory transfers, and create and receive purchase orders automatically.
Eight features to look for in an automated inventory management system
Not sure where to start in your search for an automated inventory management system?
Whichever system you choose, make sure it has the following eight features:
Real-time inventory data tracking
This feature keeps an eye on your stock levels 24/7. It updates instantly when items are sold, returned, or restocked. You’ll always know exactly what you have and where it is, so you can make accurate stocking decisions.
Demand forecasting
Look for an automated inventory system that uses past sales data and trends to predict future customer demand. These insights help you see what your customers will want in the coming weeks or months, so you stock up on the right products at the right time.
Multi-location inventory management
Multi-location inventory management is a must-have feature if you store products in different places. It lets you track and manage your stock across multiple warehouses, stores, or online channels, all from a central system.
No matter where it’s located, you get a complete view of your inventory, helping you make better decisions on stocking and how to fulfill orders efficiently. Multi-location inventory management allows you to move products between locations to meet demand and reduce shipping costs.
Stock alerts
Stock alerts act like a warning system, notifying you when inventory levels are getting low or when you're running out of a popular item. This way, you can reorder stock before it's too late, preventing stockouts and keeping your customers happy.
Stock alerts can be customized to your needs, so you get notified exactly when you want, whether it's when stock drops below a certain level or when it's time to reorder based on sales trends. You're always one step ahead with stock alerts, so your shelves are never empty.
Sales channel compatibility
You need your inventory management tools to sync seamlessly with different sales channels, like your brick-and-mortar store, online shop, and social media platforms like Facebook.
With sales channel compatibility, you can manage all your inventory from one place, no matter where you're selling.
Footwear brand Wilding also found that Shopify POS integrations have helped them improve customer experience across offline and online channels. At their showrooms in Germany, customers can try on shoes before purchasing them in store or online.
Shopify POS fully integrated Wildling’s online and offline purchases, removing the need for Wildling to manage multiple systems to track customers, inventory, and orders.
“The Shopify POS app allows customers to try and buy in our showrooms by generating an order in the Shopify store that is processed the same way as our online purchases—it easily integrates into one system,” explains Sebastian Feuß, the company lead. “Shopify POS enabled us to reach different customer groups without huge investments in new technologies.”
These integrations make it easier to keep track of stock levels, update product listings, and fulfill orders across all your channels. It’s also another way of providing a consistent shopping experience for your customers, whether they're buying in-store or online.
Preorders
Want to generate hype for an upcoming product launch? Preorder features let you take orders for products before they're in stock.
With preorders, you can build excitement and ensure your customers get their hands on popular items as soon as they're available. Preorders are also a way of gauging customer interest and planning your inventory so you have enough stock to meet demand.
Returns management
Dealing with product returns is part of managing a retail business, so ensure your inventory management software has built-in returns capability.
Your system needs to track returned items, update inventory levels, and process refunds or exchanges quickly. When your returns process is hassle-free, your customers will be more satisfied, too.
Some tools can also provide insights into why products are returned, so you can improve your products and reduce future returns.
Inventory reporting
Inventory reporting provides detailed analytics about your stock levels, sales, and overall inventory health. With inventory reporting, you can track your bestselling products, identify slow-moving items, and make informed decisions about ordering and pricing.
These reports can also help you spot trends, forecast demand, and optimize your inventory management processes.
How to choose the right automated inventory management system
1. Assess your business needs and budget
The market for barcode scanners is strong and growing, which keeps hardware affordable and gives you a wealth of options. If you have a simple operation, barcodes are the right starting point.
RFID is more for high-throughput and complex omnichannel operations. The budget for RFID varies widely:
- Simple passive tags might cost as little as 5 cents.
- Specialized active tags for high-value assets can run up to $50.
The range is why you want to map your total cost of ownership (TCO), which includes tags, readers, labels, apps, and training. Remember that you don’t need to jump into RFID right away. Start lean with Shopify’s native inventory management features, then add in more advanced features as you grow.
When deciding on your budget, there are a few costs to consider:
Up-front investment: One-time costs to get the system up and running
- Hardware: How many 2D scanners, RFID readers, or 2D-capable printers do you need?
- Software and setup: Include any one-time app fees or developer costs for integration.
- Initial training: Factor in the labor cost of pulling your team offline for launch-day training.
Ongoing costs: Recurring costs to run the system
- Software: Account for your predictable monthly subscriptions, like Shopify POS Pro for Stocky or other apps.
- Consumables: Budget for every label or RFID tag. That 5 cent–$50 per-tag cost is small for a $500 jacket, but prohibitive for a $5 product.
- Maintenance: Budget for annual support fees and hardware replacements.
Change management costs: Hidden cost of adopting the new process
- Time-to-proficiency: Your team won't be 100% efficient on day one. Budget for a temporary one-to-two-week productivity dip as they learn the new workflows.
- Process management: Budget the ongoing labor cost for a manager to run cycle counts, audit your new inventory record accuracy (IRA) metric, and train new hires.
2. Evaluate software features and integrations
Your software will be the nucleus of everything, so it needs to have the right features. At a minimum, it should provide:
- Multi-location inventory tracking
- Purchase order (PO) management
- Stock transfers
- Cycle counting features
- Automation tools
Look for systems that use clean APIs to ensure integrations are fast and reliable. Bonus points if your platform has plug-and-play apps like the Shopify App Store and a native integration with your enterprise resource planning (ERP) system.
Shopify’s Global ERP Program can connect your commerce platform to leading ERP vendors like Microsoft Dynamics 365 Business Central, NetSuite, and Brightpearl.
Pool your inventory, sales, and customer data collected from any Shopify sales channel with the ERP to get a big picture view of your retail performance.
3. Consider scalability for growth
A system that works for one store and 100 SKUs can break under the load of 10 stores and 10,000 SKUs. The right platform can scale on order volume and business complexity.
Your platform should also handle extreme sales spikes. For context, Shopify merchants processed $11.5 billion over Black Friday and Cyber Monday (BFCM) 2024, with a peak of $4.6 million per minute. If it’s not clear yet, Shopify is built to scale with you.
Equally important is scaling your footprint. Favor cloud-based, software-as-a-service (SaaS)-delivered inventory systems that let you add new stores, warehouses, or popups with ease.
4. Check for user-friendliness and team training
Yes, consider how friendly the UI is for the system, but know that adoption comes from quality training. Peer-reviewed research shows that real-time, in-app guidance is far more effective for getting teams up to speed.
Make sure it’s dead simple for your team to use. When evaluating software, ask these questions:
- Can a new user log in and understand the main dashboard and navigation in five minutes?
- Does the system's workflow make sense? Do common tasks like receiving stock, fulfilling an order, or running a report follow a logical and minimal-click path?
- Can you customize the dashboard or common views for different roles?
- Is the system fast and responsive, or does it lag when searching for items or running reports?
- What training does the vendor provide?
- Does the vendor have a text environment where teams can practice without affecting live inventory?
- After the initial training, what does the support model look like?
Get hands-on experience with a tool before you buy it. Use these questions to understand how quickly your team will adopt the system and how long training will take.
Find the best automated inventory management system for your store
Implementing an automated inventory control management system will take your retail business to the next level. Instead of chasing your tail over endless manual processes, you’ll win back time and resources to put back into scaling up.
The best inventory management solution is one that makes your life easier. Whether you run a brick-and-mortar store or have a buzzing online shop, automated inventory management is the way forward.
Automated inventory management FAQ
Can inventory management be automated?
Yes, inventory management can be automated using barcode or RFID scanners that feed into a WMS, ERP system, or unified commerce operating system. It can handle real-time stock updates, automated reordering, cycle counts, and demand forecasting. However, it requires clean data and a pilot program to tune the new processes.
What is the difference between manual and automated inventory management systems?
The difference between manual and automated inventory management systems is how they track and manage stock. Manual inventory management systems rely on people counting items and recording them by hand, which is slow and prone to human error.
Automated systems use technology like barcodes and software to keep track of everything in real time, making the process more accurate and less time-consuming.
What automation can be used to manage inventory?
To manage inventory effectively, you can use several inventory automation options:
- Automated data collection: Devices like barcode scanners and RFID readers automatically capture and update inventory information, eliminating manual data entry.
- Cloud-based inventory software: This software automates inventory tracking, order management, and reporting, providing real-time access to data from anywhere.
- Machine learning algorithms: These algorithms analyze historical data to forecast demand, optimize reorder points, and prevent stockouts or excess inventory.
- Automated order fulfillment: Systems that integrate with fulfillment centers or warehouses automate the picking, packing, and shipping processes, speeding up order processing.
- Multichannel integration: Automation tools that sync inventory levels with online sales platforms ensure that stock information is consistent across all sales channels.
What is AI-based inventory management?
AI-based inventory management is a way of handling your stock using artificial intelligence. It uses data and machine learning to predict demand, optimize stock levels, and automate tasks like reordering. It helps retailers make better decisions, reduce waste, and keep customers happy.
