Before You Start

This guide assumes you have a basic understanding of inventory management needs for product-based businesses. We’ll explore solutions suitable for various business complexities.

Overview

25 min
Reading Time
Intermediate
Difficulty
As Needed
Review Frequency

What You’ll Learn

  • When Xero’s native inventory is sufficient
  • Key limitations of Xero’s built-in features
  • Identifying when a third-party app is necessary
  • Comparing popular inventory apps for Xero

1. Understanding Your Inventory Needs

Before evaluating solutions, define your business’s inventory priorities:

Core Requirements

  • Basic stock quantity tracking
  • Simple average cost COGS calculation
  • Manual stock adjustments
  • Single inventory location

Advanced Requirements

  • Multiple warehouse management
  • Batch/serial number tracking
  • Advanced COGS (FIFO, LIFO, Weighted Average)
  • Demand forecasting & reorder points
  • Manufacturing or kitting capabilities

2. Xero’s Native Inventory: Pros & Cons

Xero includes basic inventory management features suitable for straightforward operations.

Xero’s Built-in Inventory

This is what comes standard with Xero.

Pros:
  • Included with Xero subscription.
  • Simple stock quantity tracking.
  • Basic average cost COGS.
  • Good for very small businesses.
Cons:
  • No multi-location support.
  • Lacks batch/serial tracking.
  • Limited reporting & forecasting.
  • No kitting or manufacturing.

Expert Tip: Xero’s native inventory is ideal if you have low stock volumes, a single inventory location, and don’t require complex COGS calculations or advanced reporting. For growth-oriented product businesses, limitations will quickly become apparent.

3. Step-by-Step: When to Consider a Third-Party App

Here are key indicators that you’ve outgrown Xero’s native inventory.

  1. 1

    You Need Multi-Location Tracking

    If you operate with multiple warehouses, retail stores, or 3PLs, Xero’s single-location setup won’t suffice.

  2. 2

    Complex COGS or Valuation Methods

    Beyond simple average cost, if you require FIFO, LIFO, or specific identification, you’ll need external support.

  3. 3

    Manufacturing or Kitting Products

    Businesses that assemble products from components or sell product bundles need bill of materials (BOM) management.

  4. 4

    Advanced Reporting & Forecasting

    If you need detailed inventory aging, reorder alerts, or sales trend analysis for purchasing, a dedicated app is essential.

Pitfall: Sticking Too Long with Basic Inventory

Delaying the switch to a dedicated inventory solution can lead to inaccurate stock counts, costly overstocking/understocking, and difficulties in scaling your operations.

Once you’ve decided to upgrade, several robust solutions integrate seamlessly with Xero.

Cin7 (formerly DEAR Inventory)

A comprehensive solution for manufacturers, wholesalers, and retailers. Offers advanced features like multi-warehouse, B2B portals, and complex COGS.

  • Multi-location, advanced COGS
  • Manufacturing & kitting
  • Detailed reporting

Katana MRP

Designed specifically for manufacturing businesses, providing detailed production planning, material requirements planning (MRP), and shop floor control.

  • MRP & production orders
  • Live inventory tracking
  • Seamless Xero integration

Unleashed Software

Ideal for wholesalers and distributors, offering robust inventory management, purchasing, and sales order processing across multiple locations.

  • Multi-warehouse support
  • BOMs & assemblies
  • API for custom integrations

TradeGecko (Note: acquired by QuickBooks)

Once a popular Xero integration, TradeGecko was acquired by QuickBooks and is now called QuickBooks Commerce, primarily serving QBO users.

  • No longer available for Xero
  • Primarily for QuickBooks users
  • Modern alternatives exist

5. Making the Right Choice

Decision Checklist

  • Have you clearly defined your inventory requirements?
  • Is your business scaling beyond a single location?
  • Do you need advanced COGS or serial tracking?
  • Are you manufacturing or kitting products?
  • Have you factored in the cost vs. benefit of a dedicated app?

Need Help?

Get Expert Advice

Choosing the right inventory solution is critical. Our experts can help you assess your needs and select the best fit for your Xero setup.

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