Inventory vs Asset Management: A Guide for IT

At first glance, inventory management and asset management seem similar. You might even think that you can use the same system to manage them both. Maybe you’re evaluating software vendors right now and are close to choosing. Hold up a second. Let’s clarify the differences so that you don’t make a big mistake. Although there are obvious similarities, there are subtle distinctions that you should know before buying either one.

Fair warning, the terminology can be a little confusing, especially when you look at it from an accounting perspective. We’ll do our best to keep things simple and clear.

For the vast majority of businesses, inventory refers to the physical products they will sell to generate revenue. If your business deals in software or services, your inventory probably doesn’t take up any shelfspace. Inventory may also include raw materials or parts that will be used to make finished products.

Physical inventory is difficult to monitor and keep an accurate count of. It doesn’t matter if you’ve got a single stock room or an entire warehouse — you need to know when items arrive and are sold.

An inventory management system makes it easy to check the volume of inventory using software. When new raw materials or products arrive, you can log them into the system. When finished products are sold, the system adjusts the count so that you know exactly how many items you have left to sell.

The goal of a proper inventory management system is to serve as a single source of truth for your organization when it comes to questions such as “how many have we sold?” and “how many do we have left to sell?”

Assets are items that your business relies on to make money, but they aren’t sold to generate revenue unless the business is troubled or you no longer need the asset. Tools and manufacturing facilities are assets. Computers and furniture are assets. Taken together, assets provide the framework you use to accomplish work and sell products or services.

For a software company, the code of their products and their computers are both assets. For a manufacturing firm, the tools and equipment they use to build physical products are assets. Typically an asset depreciates over time because it’s resale value falls as it ages or wears out.

Asset management systems allow you to keep track of all the physical items that comprise your business. You can document when something was purchased, when it will require maintenance, and at what rate its value will depreciate. Asset management systems help to limit theft of company property, reduce unplanned service outages, and provide advance notice when an item is ready to be replaced.

From an accounting perspective, inventory can be considered an asset because it is calculated in the total value of the business. This can include stock piles of raw materials or parts that are needed to create finished products. If your business is storing something that isn’t ready to be sold, but will eventually be sold, it might be an “inventory asset.”

Inventory assets are an extension of your inventory and should be documented in your inventory management system rather than your asset management system.

Most businesses can benefit from using an asset management system, especially if you have more than a handful of employees. Nearly all businesses have physical assets such as computers, furniture, tools, equipment, and supplies that should be documented in an asset management system.

Other businesses will need an inventory management system in addition to an asset management system. If your business produces physical goods for sale, you will most likely benefit from an inventory management system.

Both systems are designed to record characteristics of different items, especially the total number held in the organization as a whole. If you sell the same product from multiple locations, you want an inventory management system that tells you if an item is in stock and which location has it.

In the world where more people work remotely, it’s crucial to see what equipment an employee has in their possession and where they’re located.

Both asset and inventory management systems are designed to create transparency into the physical items that comprise the business.

Inventory management systems are used by procurement and retail teams, whereas asset management systems are used by IT and facilities teams. Inventory management is vital for reporting sales and maintaining adequate stock piles. Asset management is vital for keeping equipment in good working condition and knowing where it’s located at a given moment.

It’s hard to imagine an IT department of ANY size that could perform its job without an asset management system. Sophisticated teams will succeed and fail in large part based on their use of an asset management system.

Computers, servers, switches, monitors, keyboards, mice, printers, copiers, routers, modems, AV setups, etc., all of these items have individual duty cycles, maintenance needs, and depreciation curves. An asset management system helps you keep everything in good working order and even flag underperforming equipment so it can be replaced.

An asset management system can record when a piece of equipment was serviced and what type of repair it needed. Over time you can discover which units and even which brands work best for your organization.

Due to the complexity of inventory management, your IT team may still be responsible for keeping it running smoothly. This could included bar-code scanners, label printers, and RFID tracking devices (all of which are considered “assets” used to monitor “inventory”).

Asset management was important, but maybe not critical when most people worked in offices — you could keep a close on most equipment and prevent people from walking out the front door with their computer or desk phone. Now, as the American workforce shifts to working from home, either full time or part time, employees need to take equipment home. IT departments need to prepare for a world where they can quickly know which assets are with which employees. You also need a plan for maintaining that equipment, since it will most likely need to be shipped back to headquarters for repair or replacement.

In the interest of creating a single source of truth for assets and/or inventory across your company, consider cloud-based software systems. In some cases these may be accessible from a mobile phone or tablet, giving your organization up-to-the-minute information about product availability and equipment status.

The inventory and asset management needs of one business may differ drastically from those of another business. Make sure that whatever software you choose can be customized to your business and integrated with the other software and technology that you rely on. There is no “one-size-fits-all” solution. And you definitely shouldn’t fool yourself into thinking that because a software platform can do inventory management it can also do asset management. These are different disciplines with some shared features and benefits. Only you can decide which is right for your needs.

i.e.Smart Systems is a Houston, TX based technology integration partner that specializes in design and installation of audio/visual technology and structured cabling. For more than three decades, our team of in-house experts has partnered with business owners, architectural firms, general contractors, construction managers, real estate developers, and designers in the Houston market, to deliver reliable, scalable solutions that align with their unique goals.