Firms proficient in inventory management harness maximum profits and client satisfaction from the least possible investment in stock. Indeed, the cornerstone of efficient inventory management, as evidenced by these successful enterprises, is a wealth of data encompassing aspects such as purchases, reorders, shipping, warehousing, storage, receiving, customer satisfaction, loss prevention, and stock turnover.
Fortunately, inventory management systems are a goldmine for much of this critical data. Businesses that meld their enterprise resource planning (ERP) systems with inventory management capabilities gain a strategic edge over competitors. The principal advantage, though, stems from the capability to exchange information instantly within various sectors of their organization.
What is ERP Inventory Management?
ERP inventory management is a comprehensive system that enables businesses to manage all facets of their operations under one unified platform, encompassing inventory, finance, planning, logistics, and operations. This system presents real-time inventory data to the entirety of the organization, proving indispensable for businesses that anticipate expansion, handle intricate workflows or supply chains, require advanced automation, operate on a ‘just in time’ basis, retail a wide array of products, or simply aim to optimize their inventory investments.
Do You Require Inventory Management? 3 Critical Questions to Consider
Businesses should reflect on the following questions to evaluate the effectiveness of their current inventory management systems and processes:
- Does my existing system assist in effective planning? Does your present system offer precise restocking lead times and insights on, for instance, current inventory levels, optimal replenishment times, inventory turnover rates, and detailed sales data (including who’s buying what and when)?
- Does my current system yield strategic insights for business growth? Given today’s intricate supply-chain intricacies, it’s imperative to have a system that facilitates future growth planning and provides proactive alerts on potential shifts in demand. The last thing any business needs is stock-outs, pushing customers towards competitors.
- Do my sales and customer service teams possess necessary insights for quality customer engagement? With the advancements in today’s technology, all team members should have real-time data on inventory levels. This should include not only the current stock but also its location, incoming inventory, and how swiftly it can reach the customer.”
How ERP-Based Inventory Management Enhances Your Business Operations
ERP systems integrate a range of data sources to facilitate a deeper understanding of SKU performance history, among numerous other insights. Organizations leverage this data to make more strategic ordering decisions and generate accurate forecasts to meet future demand, without accumulating surplus stock.
An ERP-centric approach to inventory management significantly amplifies efficiencies across the supply chain. As a unified system, it can minimize double-handling of goods and automate routine tasks, such as reordering.
Here are additional benefits of incorporating ERP into your inventory management strategy:
- Supply Chain Transparency: Effective integration of back-end systems and direct communication with partners reduces the occurrence of disruptive surprises, such as unanticipated changes in component delivery or pricing. Syncing order and shipping information becomes effortless with integrated ERP systems.
- Enhanced Reporting: Accurate inventory data empowers decision-makers to fully leverage data-driven insights, like identifying top-performing SKUs, understanding landed cost of goods sold (COGS), and tracking sales by location and channel. ERPs facilitate the creation of custom reports, providing accurate and actionable data without consuming excessive time.
- Precise Inventory Counts: ERP systems diligently track and report surplus inventory, shortages, planned restocking, obsolete inventory, and key metrics, such as average turnover rate and COGS. Within the warehouse, the system monitors and reports on product transfers via shipping and receiving operations.
- Comprehensive Inventory Analysis: ERPs offer valuable analytics for each stage of inventory flow, including COGS, turnover rates, and shrinkage. Analyzing these critical inventory metrics aids in enhancing inventory efficiency.
- Quality Checks: Most ERP systems include a feature to define inventory quality checks. For instance, if products must adhere to specific environmental or safety standards, you can input these into the system, which then cross-verifies the safety information on the products. If potential non-compliance is detected, the system will alert the staff to take corrective action.
- Inventory Planning: The ERP system lists the inventory status for each product, enabling staff, partners, and customers to check availability, quantities in hand, and on order. Having your inventory history and metrics easily accessible simplifies planning and boosts customer satisfaction.
- Cycle Counting: ERP systems support staff in executing a systematic and well-coordinated cycle count process. Integrating regular cycle counting into your warehouse operations acts as a crucial check and balance measure, thereby improving inventory record accuracy.
Key Functions to Consider When Choosing an ERP Inventory Management System
Start by assessing its long-term viability: Any new system, which extends to various aspects of your business and demands implementation effort, should cater to your current needs and those of the foreseeable future. Avoid systems with restricted functionality that you might outgrow within a span of three to five years.
With this perspective in mind, here are five steps to help you select the right system for your business:
Step 1: Define your anticipated outcomes. Consider the objectives of your stakeholders, and build a business case. The strategic planning process entails analyzing business trends, external opportunities, internal resources, and core competencies.
Next, pose questions: How does the proposed purchase correlate with long-term objectives, both established and newly revised? What invaluable insights to shape the inventory strategy will it provide that we currently lack?
Step 2: Outline the project scope. Which data sources need to be integrated to feed crucial metrics into the ERP inventory management solution? Which partners, such as suppliers, will require access? Compile a list of specific features and capabilities required to achieve the desired outcome.
Step 3: Formulate an ROI analysis. Think beyond mere cost-cutting; concentrate on how the investment will render your company more profitable, efficient, and capable of delivering superior customer outcomes. Specifically, illustrate how the technology will aid in profitable business growth by improving inventory management.
Step 4: Create a vendor shortlist. Identify which systems can cater to your needs and study case studies for businesses similar to yours. Ask the following questions to narrow down your list of potential vendors:
- Is the system flexible, easily integratable, and scalable?
- Will other industry peers provide testimonials?
- What kind of training is required?
- Can the company provide training support?
- Does the company offer trial or freemium versions for testing?
- What is the upfront or monthly cost for the software?
- What about maintenance costs?
- How long until the system is operational?
Step 5: Look into the future. Review the product goals of your potential system vendor and determine if its roadmap aligns with your business requirements.
Utilize the following checklist when investigating whether an ERP inventory management system suits your business needs.
| Capability | Benefit |
|---|---|
| Track and manage stock | Automates data collection and generates reports on excess inventory, shortages, deadstock and inventory turnover. |
| Manage sales and purchase orders | Generates, tracks and resolves sales and purchase orders, and can link them. |
| Multiple warehouse management and stock transfer features | Tracks information down to the warehouse level and across multiple warehouses so businesses can see the location of all goods. |
| Payment gateway capabilities | Enables companies to receive multiple types of payments, such as ACH and credit and debit cards. |
| Built-in modules or integration with ecommerce, shipping and/or accounting software | Can integrate natively with or includes modules for required functions. |
| Operational tools such as ecommerce, transportation management and manufacturing | Tools can vary based on business use case, but can provide for or integrate with all required functions. |
| Digital data collection | Cut down or eliminate manual data entry. |
| Intelligence reports and analytics | Deliver reports that are tailored to key decision-makers and regularly updated. |
| Accounting package | Integrate all accounting functionality with inventory management. |
| Wholesale distribution | Integrate with distribution process management and supply chain management. |
| Picking and packing | Shows status of picking and packing and can help pinpoint where and when problems occur. |
| Point-of-sale (PoS) support | Merging to track sales as they happen and deliver sales and improvement data. |
| Customer relationship management (CRM) | Combine back- and front-end (client-facing) information. |
| Track locations, transaction history and costing | Provide an overview of all inventory transactions. |
| Calculate materials and precise weight | This data enables staff to make educated decisions on material requirements. |
| Shipping/delivery process | Documenting the shipping and delivery process enables staff to determine timelines of production and generate shipping receipts. |
| Multi-channel order fulfillment | Can track fulfillment details and manage orders for businesses that sell on more than one channel. |
| Drop-shipping | Ecommerce businesses can transfer customer orders to another retailer when they do not have the product in stock. Acts as a dashboard and payment tracker. |
| Cross-docking | Track loading goods from delivery vehicles directly to outbound vehicles and on to market. |
| Cloud-based | An offsite vendor hosts and manages the software. Ideal for geographically distributed companies or those with minimal internal IT resources. |
Utilize this list to prioritize features that cater to your specific company’s present and future needs. Don’t let the constraints of your current systems limit your perception of your business requirements.
Successfully Launching an ERP Inventory Management System
To correctly implement an ERP inventory management system and fully harvest its benefits, it’s crucial to adhere to an implementation roadmap. This roadmap typically consists of three primary steps:
- Establish the Record: Consolidate all necessary data and functions into one ERP system, or link data from indispensable legacy systems to your ERP for real-time integration and updates.
- Elevate the Record: Integrate additional functions, such as payroll, procurement, and advanced analytics. Consolidating all these tasks within a single system of record results in optimal performance.
- Expand with Advanced ERP Functions: ERPs offer sophisticated functions, like planning, analytics, and quality management modules, which can assist your company in innovating and adapting to fluctuating market conditions.
Given that ERP systems can manage a myriad of functions and areas, they can potentially influence many aspects of a business. Utilize the roadmap to navigate your business from its current state to your envisioned goal: possessing complete control over your inventory.
Leveraging an ERP System for Inventory Control
An ERP system, optimized for inventory management, automates essential functions to harmonize stock purchasing, organization, and transfer processes. This system also helps in maintaining optimal stock levels by aligning the inventory needs of staff, customers, and suppliers.
The illustration below showcases how an ERP could interact with these groups, their respective software systems, and your central database. The ERP serves as a centralized hub for orchestrating inventory operations.
Each group illustrated in the diagram performs different functions and processes, hence requiring distinct systems. For instance, suppliers typically utilize financial, forecasting, and inventory applications.
Nevertheless, all these systems need to operate in harmony. The ERP system acts as a central hub and interface, facilitating communication among all systems. Every specialized software system has a juncture at which it dovetails with the ERP.
To understand how an ERP integrates with existing systems, let’s consider a business that employs a product lifecycle management (PLM) system to manage inventory from conception to production release. ERP and PLM are complementary systems. In this scenario, ERP takes care of production resource planning, among other aspects. The systems would interact sequentially, where initially, product data originates from the PLM. Once a product reaches a stage in its development that requires resources, the ERP integrates the production process with the rest of the business operations.
Executing efficient inventory control necessitates a network of people and systems. Inventory control extends beyond a “one system and done” approach — a centralized strategy is crucial, especially when scaling a business.
When initiating an inventory control system, it’s essential to start early and gather a team of internal experts who can assist you in:
- Documenting existing inventory processes.
- Setting realistic budgets.
- Establishing milestone objectives.
- Facilitating testing, user acceptance, training, and other implementation checkpoints.
In summary, companies with isolated, disparate systems lose out on valuable inventory insights that could enhance their operational efficiency. A comprehensive ERP system with robust inventory management capabilities can elevate inventory management from a standard procedure to a competitive edge.
Keep an eye out for built-in business intelligence that merges data with visual analytics, aiding managers in making well-informed decisions. A customizable design will evolve with your business, enabling you to add resources and features as and when required.
