Digital Transformation Today

How To Effectively Manage Inventory With an ERP Inventory System

What Is Inventory Management?

The process of inventory management involves the ordering, storing, and shipping of a company’s physical products. The primary goal of ERP inventory management software is to minimize holding costs by providing insight and alerts into when it’s time to reorder, restock, or re-manufactured products. Inventory mismanagement can have disastrous consequences. Businesses either lose money on sales that can not be fulfilled or waste money from having too much (or even bad) inventory in stock. An effective ERP inventory management system minimizes overhead and increases efficiency by tackling a number of common inventory challenges.

Common Inventory Challenges That An ERP Inventory System Help Solve

A lack of inventory management can wreak havoc on a business. Thankfully, the most common inventory challenges can be solved by upgrading to an Enterprise Resource Planning (ERP) system that automates and consolidates supply chain processes. An ERP inventory system can help you avoid:

  • Excess Inventory
  • Inventory Shortages
  • Dead Stock
  • Inventory Turnover

Excess Inventory

If your company sells seasonal products, you probably avoid carrying excess inventory like the plague. Too much inventory reduces liquidity and increases overhead, but forecasting too conservatively can lead to inventory shortages. An ERP inventory system can analyze historical sales data and past seasonal trends to set realistic safety margins.

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Inventory Shortages (Out-of-Stock)

Inventory shortages can be just as costly as excess inventory. If the profit margin of your product is high and your space is competitive, not having enough stock during peak selling periods can be detrimental. ERP inventory software allows for “par levels” (minimum inventory thresholds) to be set for each product and changed throughout the year, if needed. If a product’s inventory falls below the set par level, an alert immediately gets sent out to order more. If combined with the right automation software, an ERP inventory management system can even generate and send out the purchase request automatically.

Dead Stock

Dead stock is on-hand stock that’s expired, unused, unsold, or forgotten about. Having dead stock is particularly harmful because it wastes money on two separate fronts; the original cost-of-goods sold can’t be recovered, and warehousing (storage) costs increase each day the product sits. An ERP inventory system keeps track of all data on when products are purchased or manufactured, when they expire, and when they become unprofitable. Again, alerts can be set up to notify when stock becomes “dead”.

Inventory Turnover

Understanding inventory turnover is crucial to knowing when to reorder or remanufacture products. Manually calculating your inventory needs time — count cycle + order cycle + delivery cycle — is not only time consuming, but there’s plenty of room for human error. Automating this process makes sure your business can stay operational in between ordering. ERP consulting can guide this process easily.

It’s All Moot Without People And Processes

Even with the most powerful corporate ERP inventory system, an organization will continue to face inventory management challenges if there’s not an articulated supply chain process in place, with people trained to implement and uphold it. We’ll dig into this topic in our next post on the People and Processes of Inventory Management.

Are inefficiencies in your supply chain process costing you time and money? Discover how an ERP inventory system can help alleviate your inventory challenges. Contact us online with questions.

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