Complete Guide to Automated Inventory Management

Did you feed the wrong numbers into your inventory spreadsheet (yet again), and now all you're left with is four cancelled orders (and infinite regrets)?

Well, manual inventory management can make things even worse with issues like delayed restocking, stockouts, missed deadlines, outdated numbers, and more. These mistakes cost you time, money, and hard-earned customer trust.

But but but, there’s a way to save it all!

Automated inventory management software puts inventory updates across all channels on autopilot and gives you full visibility into the past, present, and future of your inventory needs to make informed decisions.

The key, though, is choosing the right tool, one that fits your current needs and grows with you. The right tool makes inventory management on Shopify very easy.

This guide will explore the benefits of automated inventory management, the features to look for, and how to choose and implement the best tool.

What is Automated Inventory Management? 

Automated inventory management is the use of data and algorithms to track and manage inventory without manual input. Instead of relying on spreadsheets or physical counts, the automation rules update stock levels in real-time, send alerts when stock is low, and even forecast future demand, saving you time and reducing errors.

If we break it down, the entire process relies on three main components working together. First, there’s data collection that can be either done using tracking technology, such as barcode scanners or RFID readers, or simply by uploading the product catalog directly to a platform like Shopify.

Second, you have a Shopify inventory system like Prediko that processes all this data, serving as the brain of the operation. It analyzes sales patterns, manages reorder points, and coordinates with other business aspects. 

Finally, there are integrated tools that connect your inventory with other parts of your operations, such as your retail stores, accounting, logistics, shipping, and suppliers. 

Key Benefits of Automated Inventory Management

Automation helps you go from reactive inventory management to a proactive one, where you no longer have to deal with stockouts, overstocks, or other inventory-related issues.

Learn how automated inventory management helps you make this shift. 

1. Increased accuracy and real-time tracking

By eliminating manual data entry and infusing tech like barcode scanning and RFID in your operations, automation helps maintain and track precise counts of stock levels at any moment and at any location.The automated inventory workflows also drastically reduce human error that happens with manual methods, often causing stockouts or overstocks.

2. Improved efficiency and time-saving

Tasks that once required hours like manual counting, updating spreadsheets, reordering, and creating purchase orders can now be automated and done in minutes. This way, employees get more time to focus on strategic activities like customer service, sales, and promotion planning while routine processes run in the background.

3. Faster and informed decision-making

Automated inventory management tools offer detailed analytics and forecasting capabilities, allowing you to spot trends, identify slow-moving items, and adjust stock levels based on historical data. With granular, real-time data generated by the software, inventory decisions (like stocking, purchasing, and marketing) become faster and more accurate.

4. Cost reduction and optimal stock levels

An automated inventory management tool can help you save and control costs in many ways. First, you only order what you need, when you need it, preventing both overstocking (which ties up capital) and stockouts (which can result in lost sales).  Second, with data-focused planning, you can eliminate dead stock, reduce warehouse space requirements, and minimize emergency shipping costs. 

Lastly, labor costs decrease as manual counting and data entry requirements are reduced, while improved data accuracy means fewer costly errors.

5. Higher customer satisfaction and reduced lead times

Customer satisfaction increases when you constantly meet their demand without any delays. Automated inventory management improves order accuracy and fulfillment processes, and reduces delays in restocking, leading to faster delivery times. Real-time inventory visibility also allows you to provide immediate, accurate details about product availability and shipping times.

6. Simplified scaling and integration with existing systems

Scaling operations becomes much easier with an automated inventory management tool. This is because you can easily create additional automation rules for new product lines, storage locations, and sales channels without a proportional increase in operational overhead. 

Plus, these tools easily integrate with other platforms, like shipping, accounting, or logistics tools, creating a smooth flow of data and processes. 

7. Greater visibility across sales channels 

The reality of today’s retail is omnichannel. Most inventory management tools have built-in syncing capabilities to let you track and manage inventory across all channels, whether physical stores, website, or marketplace listings.

This ensures you always know which products you have at which locations, leading to more efficient inventory allocation and stock transfers.

Essential Features to Look for in Automated Inventory Management Software

While we will walk you through the detailed process of choosing an automated inventory management tool, let's first take a look at some important features to consider. 

Focus on the features that will have the greatest impact for your business. To simplify decision-making, rank them as P0, P1, or P2 based on your needs. 

1. Real-time inventory tracking

One feature that makes automated inventory management software a must-have is real-time stock tracking. 

Using these tools, you can monitor and maintain accurate counts across all channels and locations while automatically adjusting inventory levels as transactions occur. This helps you make inventory decisions based on current data rather than outdated information fed through manual ways.

Built for Shopify stores, Prediko’s AI-powered inventory management tool syncs in real-time with your sales data and lets you set up automated inventory workflows instantly.

2. Barcode scanning capabilities

Another feature that you must look for is barcode scanning to eliminate manual receiving, picking, and counting processes. 

This helps your team to quickly record incoming shipments and outgoing orders, and conduct inventory counts by scanning items rather than manually counting and feeding data. 

3. Reorder point notifications

Reorder point notifications are automatic alerts that warn you when stock levels fall below a predetermined level. This feature helps prevent stockouts by ensuring you reorder in time and maintain continuous product availability without constant monitoring.

Using Prediko, you get daily and weekly email alerts of products or SKUs that are out-of-stock or at risk. It has smart "Buy Now" nudges, triggered based on lead times, safety stock, and stock cover.

4. Integration with other business applications 

Inventory management cannot exist in a vacuum. You need to integrate it with the rest of your tech stack. 

The software should easily connect with platforms like accounting, marketing, and logistics tools to automate data syncing between them. 

This eliminates time-consuming app hopping to feed data and the subsequent scope of errors.

Prediko offers 40+ integrations including third-party logistics providers, shipping solutions, eCommerce platforms, and warehouse management software for synced operations. 

5. Inventory forecasting and planning 

Automated inventory management tools don’t just help with feeding data, but also process it to produce insights. Your tool must include features or algorithms to analyze historical sales data, seasonal trends, and other factors for predicting future inventory. 

This helps you make proactive stocking, promotions, and resource allocation decisions.

Prediko’s AI model extracts your past data and forecasts sales at the SKU, product, category, and company levels for forward-looking decisions.

6. Reporting and analytics 

While real-time data is essential, you also need analysis of the data collected over time to spot patterns and make informed purchasing decisions.

This is why your software should offer a range of reports, dashboards, and charts covering inventory performance, stock levels, sales trends, PO status, profitability analysis, etc. It should also allow you to create custom reports specific to your business needs.

If you’re using Prediko, you get access to granular reports and analytics including metrics to track product performance, late or upcoming POs, weekly plan achievement, and excess SKUs. 

7. Support for multiple users and sales channels

For businesses that operate on multiple platforms (website, POS, marketplaces, etc.), it’s important to have software that supports multiple sales channels. This gives you centralized control over your distribution network.

Prediko enables you to consolidate all your sales and inventory data in one place, supporting multi-store, multi-warehouse, bundles, and subscription tracking. 

The software should also allow multiple user access with appropriate permissions, allowing your team members to collaborate while maintaining security. 

How Automated Inventory Management Works

Automated inventory management works by continuously collecting data throughout the fulfillment process and transforming that data into actionable insights using inventory management software. This eliminates manual errors, streamlines operations, and allows businesses to scale more efficiently.

If we break it down, the process operates through three main components:

1. Data Collection & Tracking
   Inventory automation starts with data collection, which can be done through barcode scanners, RFID readers, or by directly syncing product catalogs with platforms like Shopify. This enables real-time tracking of stock levels across warehouses, retail locations, and online sales channels.
2. Inventory Processing & Optimization
   The core of an automated system is an inventory management platform like Prediko, which serves as the brain of operations. It analyzes sales trends, manages reorder points, and aligns inventory movements with market demand. These platforms provide AI-powered forecasting, making stock planning more precise and efficient.
3. Integration with Business Operations
   Automated inventory management tools don’t work in isolation. They seamlessly connect with other systems such as warehouse management, logistics, shipping, and accounting software to ensure smooth operations. This interconnected ecosystem allows businesses to quickly adapt to market shifts, optimize order fulfillment, and minimize stock-related risks.

By leveraging automation, businesses can pivot to market demand quickly and implement inventory changes at scale, eliminating the inefficiencies of outdated manual processes. With the right inventory management system in place, brands can prevent stockouts, reduce excess inventory, and confidently make data-backed decisions.

How to Choose the Right Automated Inventory Management Software

We will now help you with a framework to pick the right automated inventory management software system for your business.

Step 1: Assess business needs and future growth plans

Start by documenting your current inventory challenges. Create a list of the existing number of SKUs, storage locations, sales channels, and daily transaction volume. Then, map out your existing workflow, identifying pain points like stockouts and poor visibility where automation could help. 

Consider growth projections for the next two to three years; will you expand to new sales channels? Add more product lines? Open new warehouses? List these future requirements separately. 

For example, if you plan to sell on Amazon within a year, you'll need a tool that integrates with it. Interview team members who handle inventory to gather their input and requirements. 

This in-depth assessment will serve as your evaluation checklist.

Step 2: Consider budget and return on investment (ROI)

Calculate inventory-related costs incurred over a period, say one year, including labor hours spent on manual counting, costs of stockouts, dead stock expenses, and other errors. Use these figures to set a realistic budget range and evaluate the ROI.

Next, search for a tool that fits within that range and offers almost everything on your checklist. While a low-cost solution might seem appealing, it may lack essential features or require constant manual intervention. So, be cautious in your evaluation. 

Many tools offer subscriptions, while others charge a one-time fee. Be clear on which pricing structure works for your business. Some vendors may also charge additional fees for setup, integrations, or training. Always account for these hidden costs when comparing different tools.

Step 3: Focus on other key considerations

Next, create an evaluation matrix with weighted scores for your required specifications. Usually, these include 

• Must-have features: Score vendors on features you need like forecasting, real-time tracking, and reporting (40%)
• Integrations: Test compatibility with your existing tools (like ERP, accounting, and shipping) and sales channels (like Shopify and Amazon) (25%)

• Scalability: Assess if the tool can handle at least 3x your current volume without high additional costs. Ask vendors about their product roadmap to see if the tool can grow with your business. (15%) 
• User interface: Rate the learning curve and ease of use for your team (10%)
• Customer support: Evaluate support hours, response times, and training resources (10%)

Research at least five to seven vendors that match your requirements and budget. 

Read user reviews on platforms like Capterra and G2, focusing on businesses similar to yours. Contact their existing customers or read case studies for feedback and impact.

Step 4: Evaluating and conducting trials

Before finalizing a tool, check how well it meets your needs. Many inventory management tools offer free trials or demos to help you test usability and see how it fits within your business.

Set up a test environment and import a sample of your actual inventory data. Then, run your most common workflows, test integration with other tools, and verify the accuracy of automation features like reordering notifications and forecasting.

Involve your team and gather feedback from those who will be using it daily. You should also verify the service level agreements (SLA) for system uptime and support.

Remember that the cheapest or most feature-rich option isn't necessarily the best fit. The best fit is the one that checks most of the boxes on your checklist and scores the highest on the evaluation matrix.

Still got questions? Get answers to the 5 most pressing inventory questions from the Limited Supply Podcast in this article.

Why Excel Might Not Be the Best Choice for Automating Inventory Management

Spreadsheets are great for a lot of things—basic calculations, data organization, and even quick financial modeling. But when it comes to automating inventory management, relying on Excel can quickly turn into a logistical nightmare.

At first glance, it seems like a simple solution. You might think, “I’ll just export my Shopify and eBay data, add a few extra columns for warehousing details, and track inventory from one central spreadsheet.” But here’s the reality:

1. No Real-Time Syncing

Unlike dedicated inventory management software, Excel doesn’t automatically update inventory levels as sales happen. Shopify does track inventory in real-time, but if you’re managing stock across multiple platforms (like eBay and Shopify), keeping Excel up to date requires frequent manual exports. Every time you export, you create a new file, which means old data can quickly become obsolete.

2. Complex Setup and Maintenance

Unlike dedicated inventory management software, Excel doesn’t automatically update inventory levels as sales happen. Shopify does track inventory in real-time, but if you’re managing stock across multiple platforms (like eBay and Shopify), keeping Excel up to date requires frequent manual exports.

Every time you export, you create a new file, which means old data can quickly become obsolete.

One Reddit user shared that they tried using Power Query to append new Shopify reports to an existing Excel file, but the process still wasn’t fully automated.

3. Prone to Errors and Data Loss

Even with advanced Excel formulas, mistakes are inevitable. A simple misclick, a misplaced formula, or an accidental overwrite can throw your entire inventory tracking off balance. Unlike an automated inventory system that prevents stockouts and overordering with real-time alerts, Excel offers no such safeguards.

4. No Seamless Multi-Channel Management

If you’re selling across multiple platforms—Shopify, eBay, Amazon, or even a physical store—Excel becomes even more difficult to manage. It can’t sync orders, update stock levels across channels, or provide visibility into stock movement. Any update you make to inventory in one platform has to be manually reflected in Excel, increasing the risk of errors.

Instead of wasting time juggling exports and formulas, it’s more efficient to use an automated inventory management tool that integrates directly with all the modern eCommerce platforms.

How Automated Inventory Management can work for small businesses

For many small businesses, inventory management can start as a simple process—one person manually updating stock counts in a spreadsheet or a simple local machine based accounting software. But as the business grows, the complexity multiplies. With hundreds of SKUs, daily stock inflow and outflow, and multiple transactions happening at different times, relying on manual updates can slow things down and lead to costly mistakes.

This is where automated inventory management can be a game-changer. Here’s how:

1. No More Dependency on a Single Person

Many small businesses rely on one dedicated employee to update stock levels every day. If they’re unavailable, the process stalls, leading to delays in restocking, incorrect order fulfillment, or even missed sales opportunities. An automated system eliminates this bottleneck by automatically adjusting stock levels as invoices are generated, ensuring inventory data is always accurate—without manual intervention.

2. Real-Time Stock Adjustments

One of the biggest challenges for small businesses is keeping track of stock in real-time. Many business owners using simple accounting software, for example, find themselves manually entering stock changes every morning. With automation, every purchase order (inflow) and sales invoice (outflow) is recorded instantly, updating inventory levels on the go. No more end-of-day data entry, no more stock discrepancies.

3. Low-Stock Alerts to Prevent Stockouts

Running out of stock unexpectedly can mean lost revenue and frustrated customers. An automated inventory system helps avoid this by sending low-stock alerts based on predefined reorder levels. You’ll know exactly when to restock before it’s too late—without having to sift through spreadsheets or manually check warehouse shelves.

4. Better Visibility into Stock Movement

Understanding how inventory moves over time is crucial for better decision-making. Many business owners struggle to track how much stock is being sold each month or which SKUs are slow-moving. Automated inventory tools provide clear insights into stock turnover, helping you optimize purchasing decisions, reduce dead stock, and improve cash flow.

5. Seamless Integration with Existing Systems

For businesses already using tools like simple software for invoicing, an automated inventory management system can integrate seamlessly, automatically reflecting stock changes without needing separate manual updates. Instead of switching systems entirely, automation allows you to enhance your current workflow, making it more efficient without disrupting what’s already working.

6. Scalability Without the Growing Pains

Manually tracking inventory might be manageable when you have 50–100 SKUs, but when that number reaches 400+ (or more), it becomes unsustainable. Automated inventory management grows with your business, allowing you to handle more SKUs, multiple warehouses, and increased sales volume—all without increasing manual workload.

Implementation of Automated Inventory Management Software

You’re all set to automate your inventory operations and free your team from those tedious, error-prone tasks. Here’s how you can go about it.

1. Do pre-implementation planning

Create a project timeline outlining key tasks and milestones. Assign a team or individual to be responsible for implementation and troubleshooting. This will help address issues quickly and minimize delays. 

Establish success metrics and KPIs like reduced stockouts by 20%. Document your current inventory workflows and data structures to help with the tool setup. Plan for data migration by cleaning and organizing existing inventory data, standardizing SKUs, and verifying current stock levels.

Tip: Deploy during slower business periods and roll out the system in phases rather than all at once. Start with core features and gradually introduce advanced functionality.

2. Configure the tool and automate processes 

Install or download the app. Set up the tool by connecting your sales channels, bulk importing existing inventory data, and adding supplier information and warehouse locations. 

Automate processes such as syncing across channels, triggering restock notifications, generating custom reports, and creating purchase orders from imported data.Finally, link your inventory management software with the rest of the business tools like ERP, accounting, and warehouse management platforms through integrations and APIs. 

Tip: Test data flow between tools in a staging environment before going live. 

3. Train the relevant team members 

Ensure your employees are comfortable and proficient in using the new tool. Be supportive as relevant teams adapt to the new tool and processes by organizing tutorials and training sessions. Create quick help guides and troubleshooting documents. Record training sessions for future reference and new hires. 

Communicate the benefits and reasons for the new system clearly to all stakeholders to prevent any resistance. Identify and assign champions within each department to support their colleagues. 

Tip: Keep employees updated on new features and best practices. You may also schedule periodic refresher training sessions.

4. Carry out a post-implementation review

Once deployed, closely monitor the software during the initial weeks for any issues or glitches.Track KPIs against pre-implementation benchmarks like inventory turnover, stockouts, order accuracy, and fulfillment speed. 

Gather feedback from users and keep track of the adoption rate. Document lessons learned and make adjustments. Contact the vendor if support or help is needed. Over time, establish a regular maintenance schedule for system updates and improvements. 

Operate Confidently with Automated Inventory Management

Automated inventory management wipes out manual tasks from your workflows, including data entry, stock counting, demand prediction, restocking, and more. This not only reduces manual labor but also significantly improves accuracy and execution speed.

Keep in mind that automation is no longer just an extra feature, but an essential way of working to meet the needs of modern customers. So, go ahead, take trials of different tools, select the one that fits your needs, and roll it out strategically to avoid disruptions. 

Start with Prediko’s 14-day free trial and see how automation and AI can make a difference. 

Frequently asked questions on automating inventory management system

What are the 4 types of inventory management systems?

The four main types of inventory management systems are:

1. Perpetual Inventory System: Tracks inventory in real-time with continuous updates after each sale or purchase.
2. Periodic Inventory System: Inventory is updated at regular intervals (e.g., monthly or quarterly).
3. Just-In-Time (JIT) System: Inventory is kept at minimal levels, replenished only when needed to meet demand.
4. ABC Analysis: Categorizes inventory into three groups (A, B, and C) based on value and turnover rate, helping prioritize focus on high-value items.

How to use AI for inventory management?

AI can improve inventory management by predicting demand, optimizing stock levels, and automating reorder processes. It analyzes historical sales data, market trends, and seasonality to forecast future demand and reduce stockouts or overstocks. AI can also help with real-time inventory tracking, ensuring more accurate, data-driven decisions.

How to automate inventory management in Excel?

To automate inventory management in Excel, use formulas like SUMIF, VLOOKUP, and conditional formatting. However, even with formulas, Excel is not ideal for large-scale inventory management as it lacks real-time updates and can lead to errors.
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