Management of the inventory saw a radical change on the opening up of the economy as a result of globalisation. The customers were given access to a huge variety of goods from all over the world by the retailers that added to the company profitability. It is said that Wal-Mart has a stock collected from more than 70 countries. Control over inventory became the need of the hour which necessitated a proper and effective system of inventory control.

The organisation inventory can be in the form of raw materials, or finished goods depending on the type of business of the entity. When the amount of capital gets locked up in inventory, it can have a direct hit on the company savings. A too less a quantity can result in customer dissatisfaction leading to a loss of business. An automated system of inventory control which can regulate the flow of stock on the basis of its demand thus became a necessity.

Before the industrial revolution the merchants had to keep track of their stock at the end of each day to understand the fast and slow moving stocks and the amount of inventory. But the large scale production which was the result of industrial revolution, led to the use of punch cards which was developed by a team from Harvard, wherein the information on the catalogue which corresponded to those in the punch card informed the store keeper about the type of goods demanded by the customer. This was then transferred to the despatch section. But the huge cost involved resulted in the use of bar code in the 1950s which used ultraviolet light-sensitive ink and a reader to mark items for sale. But as the system lacked the computing power, a new technology which used laser to read the data was developed. The modern day bar code or the Universal Product Code helps in the tracking of inventory, reorder level and purchase details making the complete automation of inventory flow possible. This was followed by a technique called Radio Frequency Identification or RFID to transmit product information including misplace of an item in the store possible. This technology can help in minimising pilferage to a large extent. Vendor managed inventory is another technology wherein the vendor takes up the responsibility of keeping track of the inventory movement and its replenishment according to the needs.

The inventory management starts with the bar code scanner reading the code and matching the bar code with the merchandise during the time of billing. This information is utilised by another program to identify the fast moving and slow moving merchandise, the stock in shelf and the reorder level. The automated inventory system helps to keep track of the various stages of stock like stock-in-hand, on hold, on order, etc. Once the stock reaches the reorder level, the management can use a near real time system for placing the new order with the supplier. According to Charles Dominick reorder point can be calculated as follows:

ROP = SSQ + (QUD x ALT)

Where,
ROP = Reorder Point
SSQ = Safety Stock Quantity or the buffer stock to meet sudden surge in the demand
QUD = Quantity Used Daily
ALT = Average Lead Time (in days)

But this formula may not be effective in those firms which do not keep buffer stock.
Once the order for inventory has been placed, the management has to keep track of the movement from the supplier to inform the sales staff or the customer about the probable date of supplying the finished goods. A good inventory system can also assist in keeping track of the order like outstanding order, those waiting for approval, shipped or cancelled orders. Once the goods have been shipped the system can also be utilised to check the details of the shipment including the probable time of arrival. This is a continuous process which can be performed effectively and profitably using a good inventory system.

A good inventory system can add to the profitability of the concern to a large extent. The ability to meet the customer demand on time, reduction in inventory, minimum pilferage, all add to the effectiveness of the business.