A Comprehensive Guide to IoT-driven Inventory Management1
Internet of Things Talking Tech

A Comprehensive Guide to IoT-driven Inventory Management

Inventory Management has always been a challenge – whether it’s after the industrial revolution or today’s Industry 4.0. When the product comes in, is on the shelf, flies out, and another stock comes in, managing all of these aspects is just tiresome. Modern issues like unplanned downtime, equipment breakdown, excessive inventory, machine bottlenecks, quality rejections also plague industries today. The only difference in the prehistoric age and today is IoT. Previously, we didn’t have IoT, but today IoT and big data aim to resolve real-time production and management problems. If we check the statistics, Forbes estimates that IoT, on the whole, will be a $1.2 trillion industry by 2022. And talking about IIoT (Industrial Internet-of-things), a report from Markets and Markets forecasts that it will grow from $68.8 billion to $98.2 billion by 2024. 

Coming back to inventory, a report by dream wise marketing says that only 33% of manufacturers use inventory management software, whereas 67% still rely on excel sheets, losing 18 months in writing. That’s not the only issue – there are many. Well, the best part is all these can be tackled with IoT-based Inventory Management. Let’s learn how! But first, let’s check out the drawbacks of the traditional inventory management that IoT helps overcome.

Drawbacks of Traditional Inventory Management

Solve chain successful wooden risk organization Free Photo

Inventory Management plays a major role in every industry. Previously it meant managing spreadsheets, physical checking, and storing of the stock. All of these incurred hefty expenses. Here are the other drawbacks of the traditional system: 

  • Lack of real-time inventory data

You use outdated spreadsheets to track inventory so you would never have accurate data of the inventory. Say, a last piece of product in the warehouse was ordered and shipped. And the person-in-charge has forgotten to update it in the manual sheet. So, the next time, if the same order request is received, the staff or inventory manager won’t know if the product is available or not. IoT based Inventory management tracks the products and every inventory data in real-time. 

  • Inaccurate projection of demand and supply

Replenishing inventory as per the requirements is essential or you may end up piling non-essential stocks with no orders. Manual inventory management doesn’t fill the gap between the inventory and the demand, it fails to predict the future, or streamline data to analyze the trends. 

  • Decentralized control

Businesses require a centralized approach to stay profitable. The manual inventory management system uses a decentralized approach which means data is updated periodically. On the other hand, IoT based inventory management ensures data is updated on all the devices as soon as a sale is made on POS.

  • Lack of optimization

Manual inventory management systems have limited growth opportunities in the long term. If your business is expanding, so will your inventory. Cost-control methods, predictive analysis, process efficiency measures cannot be integrated into a manual system. Moreover, you would require a huge man-power to manage your inventory which is usually done with a lack of efficiency and accuracy.

  • Misplaced inventory

Keeping tabs on inventory is a waste of time and increases labor costs. If you manage your inventory manually, the chances of misplacing are more. Moreover, the inventory may not be systematically ordered. 

Having an IoT based inventory management is essential for businesses to run smoothly. It saves time, optimizes inventory, and helps in planning future growth strategies by predictive analysis, etc. Moreover, it reduces the labor and process cost by automating everything.

Benefits of IoT enabled Inventory Management

Business concept growth success process. close up man hand arranging wood block stacking as step stair on paper blue and pink Premium Photo

IoT based Inventory Management lays a foundation for a digitalized approach. It has many benefits including:

  • Seamless communication

IoT Inventory Management enables real-time communication. By connecting sensors and RFID tags, the devices can transmit data, thereby communicating easily. 

  • Real-time monitoring

With IoT enabled Inventory Management, you can know the exact location of your inventory in real-time. Moreover, with 5g connectivity and sensors, you can micro-track each item in the package individually. Knowing the precise detail of every item in the inventory until it’s delivered.

  • Data collection

Human intervention can result in inaccuracy or errors in data collection. The best approach is to have it automated. Inventory Management using IoT scans the item, tracks its presence in the warehouse, and records it into the system.

  • Warehouse management

IoT in Inventory Management improves logistics in the warehouse. Warehouse management includes systematic storing of items. The ML algorithm can analyze the patterns and systematically arrange the frequently used items at the front and less in demand at the back. IoT Inventory Management includes the use of smart shelves and stores that can tell us how long the product is on the shelf.

  • Identifying bottlenecks

Manufacturers can track the inventory data in real-time to identify the bottlenecks and pinpoint the machine functioning. Say, if an inventory is piled up in front of a machine, that means the machine is not functioning to its fullest or its underutilized. Also, an optimized inventory will help inventory managers in identifying product demand.

  • Lead time optimization

With real-time data and analytics-based foresight, IIoT based solutions can help managers in reducing lead time. Zara, for example, was able to take a garment from design through the manufacturing process to a smart warehouse in 10 days using RFID enabled smart Inventory Management solution. 

  • Integration with robotics

All the tedious tasks of picking up the order, customer delivery, the packaging are automated by machines. By integrating the IoT system with robotics, all human-related tasks can be automated. Such as a programmed drone can help with customer delivery.

Role of IoT in Inventory Management 

As for now, cloud-based inventory systems are used to track items in real-time. They use an RFID tag or barcode label to collect the inventory data such as expiration dates, stock or stockout, item location, forecast demand, and more.

With the IoT driven solution, the ability to track and communicate with products will increase greatly. RFID tags, for example, hold more information about the product and can easily transfer it to the inventory system. They can also send information about temperature, weather, damage to the product, etc.

With an integrated GPS location, you will know exactly where every item is. Every item will have its own unique identifier. And, thus, you will be able to pinpoint every item or product. This real-time tracking will decrease stock storages, overstocks, and save time. Also, you can identify what is working for you and what’s not. For example, are the shipments getting late due to traffic at a certain time of day? Are specific products demanded more at certain locations? What processes are damaging products? With IoT, you will get answers to all these questions and more. 

IoT improves the ability to view, track, and monitor inventory. Inefficiencies and losses that you missed or failed to notice will be simple to spot and act on. As a whole, it carries immense potential for both consumers and the company. 

Related Read: Asset Management using IoT

Approaches to Smart Inventory

IoT driven solutions have become more than a concept now. Companies have started implementing sensors, RFID tags, device-to-device communication, and other forms of connectivity to manage inventory and other daily tasks.

There’s no lack of approaches to smart inventory – beacons, Bluetooth, barcode, NFC tags, RFID, and others.

However, in our opinion, these are a few rewarding ways to leverage the full potential of technology:

  • RFID technology in IoT: RFID tags can store data in larger volumes than barcodes. They can provide more information about every item – its size, manufacturer, expiration date, serial number, production line, and more. An average RFID reader can scan up to 200 tags at once at a speed faster than barcodes.
  • Wearables: By using connected devices such as smartwatches, you can instantly identify the product and the packages. They can easily track the location of the product and its details.
  • Sensors: By integrating sensors into the supply chain, you can track products and stocks on every stage. From the time they enter the inventory until it’s delivered. If inventory requires a specific temperature, stock managers can use humidity, temperature sensors to monitor and neutralize product damage risks.

Check out our case study where we created an IoT-centric ecosystem for one of our client: Enviro 360

How IoT and RFID work

Inventory management solution based on IoT and RFID uses tags to track every product in the store. Every individual product receives an RFID tag for tracking. The tag has a unique identification number (UID) that contains encoded digital information about an inventory product, such as model, batch number, expiration date, etc. So, when a product is required, RFID readers scan the tags and extract tags’ UID. This UID is then transmitted to the cloud for processing. Along with the tags’ UID, the cloud also receives the reader’s location and time of reading. After reading the data, the location of the product is stated by the cloud, and displays the real-time update about inventory products’ movement to the inventory manager, allowing them to monitor the inventory using smartphones.

Let’s see the technical components and how they communicate with the product.

The first is RFID. It has three main components: RFID tags, RFID antennas, and RFID readers.

  • RFID tags

An RFID tag consists of a UID that carries information about a specific product. You can attach these tags to any physical surface, raw material, package, crate, and pallet. Remember the tag for every product will be different. For example, if the inventory is chocolate, adding an RFID tag to the chocolate is not feasible. Instead, you can add the tag to the pallet. So, the first time, a product enters the inventory store, an RFID tag is attached to it. It contains all its information.

  • RFID readers

An RFID reader uses radio waves to write to and read from the tags. It can read from a number of tags at once over a distance. When a reader catches the UIDs of the tags, it reads the data of the product and transmits it to the cloud, together with the reader’s location and time of reading.

  • RFID antennas

So, when a reader reads a tag to gather information, the antennas intercept those waves and then supply energy for tags’ operation and transmits radio waves from tags to the reader.

So, what happens when the data is transmitted to the cloud?

IoT comes into the picture!

When the cloud receives the product data, it is filtered through data lake and then using a machine learning (ML) algorithm, it is turned into meaningful insights about the inventory product’s location, status, movements, etc. Not only this, but IoT based Inventory Management can also forecast the number of raw materials or products required for the next production cycle in a manufacturing unit. Besides, it can alert when a product is damaged or lost, notify about the items in the stock and stock-outs. Moreover, inventory management using IoT can be integrated with other systems, say, ERP – to share data with enterprise departments. 

All these technologies together simplify the inventory management system.

Note: RFID is much more effective than a barcode, but it has some limitations.

Also Read: Predictive Maintenance using IoT

Limitations of RFID Technology

  • As RFID tags are attached to every product, it may even be added to the product in the process. Thus, manufacturers need to ensure that the tag doesn’t affect the manufacturing process.
  • RFID tags can easily scan through many non-metallic materials but it has difficulty reading some liquid and metal. Say, you want to scan through a tank of water or a metal sheet, then the reading may be inaccurate. 
  • The tag costs $3 to $5 per piece. Overall, it could cost $3000 – $20,000 including the configuration and set up. Thus, if you have a large inventory, you need to ensure that product price is high to cover the tag expenses.
  • Understanding different tags, frequencies, and how to use RFID tags can be a bit complex. Thus, managers need to stay abreast of the technology as well as train employees about the new work system.
  • Workers may come across tag and reader collisions while dealing with RFID technology. In reader collision, interference from another reader may collide with the current one. Tag collisions are a bit different. In this, workers with readers face issues in reading the tags of multiple items at one time. This usually happens when multiple tags reflect signals, confusing the reader.

Use-cases for IoT Inventory Management

IoT in inventory management is considered to be the must-have technology. After all, it can benefit companies with multiple uses and an increase in the ROI. Here are the most compelling use cases of IoT in Inventory Management.

  • Track carts and forklifts

IoT enabled asset tracking and micro-location system enhances efficiency and safety by locating and tracking carts, forklifts, pallet jacks, lift trucks, and buggies used to move valuable or dangerous products/packages. With real-time asset location, managers can manage key inventory and verify that it’s stored properly. Also, the tags can help prevent collisions by generating alerts, like when multiple forklifts cross similar paths. IoT driven asset tracking will not only track the location of the cart and forklift but also the frequency of use over time. Ultimately, this helps reduce unnecessary costs, time spent in manual hunting of carts and forklifts, expenses of storing and maintaining damaged machines, and so on.

  • Detect product condition

RFID tags with IoT also provide information on weather, temperature, and other variables to detect the product condition (is the refrigerated product cool enough or the fragile glass product unbroken?). If the temperature doesn’t match with the product’s requirement and has crossed the deteriorated duration then the inventory manager and the status of the product are auto-updated to damage. This way, the staff doesn’t have to keep a check on each and every product and its condition manually.

  • Inventory status and position

Every product has an RFID tag that has a unique identifier. Using that UID, a network of sensors can track the exact location of the product in your supply chain. Not only this but also if the product is in stock or not. How many items are on the shelf (and the exact location of those shelves within the store or warehouse). Staff can now know the location through wearables or other connecting devices.

  • Reordering and avoiding stockouts

Maintaining a balance between overstocking and understocking can be challenging. If you stock less, you may experience stock-outs, and on the other hand, if you stock too much, you may end up taking more space and incur additional charges. With the IoT Inventory Management system, you can track low inventory levels and identify the reorder points of each product to avoid stockouts. Also, you can predict the future of the product and stock the products that are more in demand based on the data and trends. Going further, you can automate the reordering of products, along with receiving orders, processing, and shipping.

  • Preventive maintenance checks

Sensors update about the condition of the products, carts, and forklifts and other equipment and machinery used in the store or warehouse, helping in taking preventive maintenance checks. For example, by knowing the usage frequency of forklifts, when the forklift may fail or its holding capacity can be calculated beforehand. The inventory manager or staff will know when the machine in the store is prone to failure and by taking maintenance checks at an early stage, they can reduce downtime and save costs.


Take-Home Message is…

IoT based Inventory Management solution offers optimized operations with real-time data as a catalyst for improvement. It helps to track the precise location of products – work-in-progress and finished goods. As a result, manufacturers can outsource their tedious tasks to IoT and can work on balancing the amount of inventory, reduce lead time, avoid hidden costs, etc. Overall, IoT Inventory Management brings greater tracking, traceability, quality management, compliance, and real-time data on inventory.