ERP inventory management allows businesses to manage their day-to-day operations on a unified platform that includes inventory, finance, logistics, planning and operations. It provides real-time information that helps gauge complex workflows, facilitate advanced automation, sell products, operate in “just-in-time” mode or maximize investments.

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In this article we discuss:

• Common Inventory Challenges
• Benefits
• Significant Features
• Inventory Management Techniques

Common Inventory Challenges

Excess Inventory

If your business sells seasonal products, you should probably avoid storing excess inventory as it reduces liquidity and increases overheads. However, conservative inventory forecasts can lead to acute shortages. An ERP inventory management system can analyze historical sales data and seasonal trends to set realistic thresholds to satisfy consumer demand.

Inventory Shortages

Inventory shortages are as expensive as excess inventory. Running out of a profitable product during peak costs you money and drives customers to the competition. An ERP inventory management solution allows you to set minimum inventory thresholds for each product. It also empowers you to change the threshold limit throughout the year depending upon business requirements.

If a particular product’s inventory falls below the threshold, the system alerts you to make a purchase request for that particular item. If used in conjunction with automation software, an ERP inventory management system can automatically generate and send out purchase orders.

Dead Stock

Dead stock, also known as obsolete inventory, is on-hand stock that’s unused or unsold. These unprofitable items continue to drain money every day they take up space in your warehouse. An ERP inventory management system keeps track of product manufacturing and expiry dates while alerting you when stock becomes dead or unprofitable.

Inventory Turnover

Inventory turnover is defined as the financial ratio showing the number of times an organization has sold or replaced inventory during a particular period. It is essential to keep track of inventory turnover to know when to reorder or remanufacture products. You can calculate inventory turnover as the cost of goods sold divided by the average value of inventory. This information helps you make robust decisions about pricing, manufacturing, marketing and purchasing new inventory periodically. Automating this process helps businesses stay operational and productive in between reorders.

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Primary Benefits

Some potential benefits of ERP inventory management are as follows:

Increased Efficiency

A centralized inventory management system manages business operations from a single source of truth. Centralizing this approach eliminates overhead and cuts costs while facilitating automation of day-to-day operations to increase productivity and drive competitive advantages.

Cost-Effective

Instead of opting for segmented resources or systems for handling different sections of an organization, the ERP inventory management system handles various business segments simultaneously while reducing workload and mitigating expenses.

Supply Chain Transparency

A lot of businesses leverage third-party logistics or shipping providers to outsource their shipping requirements. An ERP inventory management system lets them integrate with external providers to ensure full system collaboration. Order, inventory and shipping information is synced across the entire supply chain to facilitate supply chain transparency.

Data Collection and Reporting

These systems facilitate quality data collection with real-time updates on customers, orders and stock in a centralized location. They also let users create robust sales reports to gain useful insights, track business performance and plan for growth.

Inventory Analysis

ERP systems track and report inventory shortages, excess inventory and metrics like average turnover rate and cost of goods sold. They also track product transit and shipments. Companies can improve inventory efficiency and boost customer satisfaction by tracking and analyzing key inventory metrics.

Quality Checks

Most ERP inventory management systems are embedded with built-in logic or rules to facilitate quality checks. For instance, if the products need to comply with safety standards, the system will check if they meet the required quality and safety specifications. If it detects that a particular item is non-compliant, it will generate notifications.

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Key Features

Here are some key features offered by these systems:

Stock Tracking and Management

Stock management involves ordering, storing, tracking and controlling inventory. It applies to every item a business uses to manufacture its products or services, from raw materials to finished goods.

Inventory is asset that represents tied-up capital, and managing stock effectively lets you free it up. Efficient stock management requires gauging different kinds of stock and acknowledging particular demands. It maintains reasonable inventory levels while balancing the need for surplus supplies and reducing tied-up capital.

Stock tracking and management organize specific items in the warehouse. They can identify an item or product with a unique identification number and its location. There are two main approaches to stock management, periodic and perpetual stock management for small businesses.

Warehouse Management

Warehouse management controls and supervises day-to-day operations like shipping, receiving, goods picking, workload planning, staff training, tracking and monitoring goods movement.

A warehouse management module within an ERP solution optimizes operational processes to gain real-time visibility into inventory levels, storage, staff productivity, demand forecasting and order fulfillment workflows. It automates and streamlines processes to save time and effort. It also helps you gain an accurate snapshot of what’s going on in the facility without periodic warehouse audits.

The benefits of a warehouse management module include:

• Reducing picking errors.
• Optimizing stock control.
• Maximizing space usage.
• Ensuring employee productivity and compliance with health and safety regulations.

B2B E-Commerce

With the advent of online stores, B2B eCommerce solutions help wholesalers and retailers connect and sell in huge quantities. A robust B2B eCommerce platform allows you to reach new customers using digital marketing strategies to foster business growth. It facilitates better management of suppliers and customers.

You can deliver personalized shopping experiences to customers by leveraging data to understand consumer preferences. Implementing cross-sell and up-sell recommendations to customers can boost sales.

Payment Gateway

A payment gateway is a remotely hosted software application that lets merchants accept credit card and electronic check payments directly from their websites. The website captures the payment information and transmits the transaction data to an appropriate financial institution to process and deposit funds into the merchant account.

Some payment gateways include a virtual terminal that allows merchants to key in transaction data. Others include an automatic recurring billing option where merchants can submit recurring payment information that can be repeated based on the selected schedule. Submitting transactions through this option is repeatable on a monthly, quarterly, semi-annual or annual basis.

Analytics and Reporting

With the help of data analytics capabilities, it is possible to conduct precise demand forecasting. Data analytics provides useful insights into consumer behavior, products and channel performance to improve sales. It boosts operational efficiency to enhance supply chain performance, prevent stockouts and speed up the order fulfillment process. Access to real-time data boosts sales, maximizes profits and increases customer satisfaction.

Analyzing real-time data helps businesses maintain the right inventory level by predicting seasonal trends, spikes or depressions in customer demand. Creating advanced reports that display key performance indicators and metrics can go a long way to boost profitability and deliver a competitive edge.

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Inventory Management Techniques

Let’s look at the inventory management techniques:

Just In Time (JIT)

JIT inventory management stores the exact amount of inventory needed to carry out daily operations. Its primary purpose is to reduce storage costs and minimize waste. An organization buys new stock only when the older stock is close to replenishment.

However, if demand suddenly rises for a particular product, the JIT technique is bound to fail as it doesn’t have adequate resources to cater to demand fluctuations. Although you can save money by employing the JIT technique, losing customers to your competitors isn’t worth it. To counter these shortcomings, companies that employ this strategy need robust forecasting tools to make precise predictions.

Minimum Order Quantity (MOQ)

Minimum order quantity defines the fewest number of units you can purchase at a given time. For instance, a manufacturer may have set its MOQ at 500 units which means they can buy no less than 500 units at a particular time. It also helps suppliers maintain a healthy cash flow.

ABC Analysis

In ABC analysis, you classify inventory items in A, B and C categories. The items in the A category are expensive and strictly controlled. Category B is less expensive and is moderately controlled. Category C contains the least popular items that require comparatively low investment and are commonly available. So, the level of control required for this category is minimal.

FIFO and LIFO

In FIFO (First In First Out), businesses utilize the items that entered the warehouse first. The food industry generally follows FIFO inventory management techniques. In this process, you consume the first-in perishable items first.

The LIFO (Last in First Out) technique is generally used for non-perishable items. LIFO considers that prices keep soaring, so recently purchased inventory is usually sold first to maximize profits.

Economic Order Quantity (EOQ)

EOQ helps businesses reduce inventory waste by ordering the lowest amount of inventory. It saves storage space and money while achieving target goals during peak demand.

Dropshipping

Dropshipping involves merchants that don’t own or stock goods. Once the merchant receives an order, he sends it to the supplier. The supplier then ships goods to the customer on behalf of a merchant.

Dropshipping doesn’t require businesses to manage inventory, and the order fulfillment cost is low.

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Conclusion

With its comprehensive features, an ERP inventory management system can reduce costs, manage inventory seamlessly and gain advantages over the competition.

How has your organization benefited from an ERP inventory management system? Let us know in the comments below!