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How To Effectively Manage Your Inventory With An ERP System — Part 1

What Is Inventory Management?

Inventory management involves the ordering, storing, and shipping of a company’s physical products. The primary goal of inventory management is to minimize holding costs by providing insight and alerts into when it’s time to reorder, restock, or re-manufacture 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 inventory management system minimizes overhead and increases efficiency by tackling a number of common inventory challenges.

Common Inventory Challenges

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 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 system can analyze historical sales data and past seasonal trends to set realistic safety margins.

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 systems allow 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 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 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. 

 

It’s All Moot Without People And Processes

Even if with the most powerful ERP system, an organization will continue to face inventory challenges if there’s not an articulated supply chain process in place, with people trained to implement and uphold it. We’ll dig into those topics in our upcoming posts on How to Effectively Manage Your Inventory. 

 

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

 

 

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