How Software Solutions Support Inventory Management Processes
For most emerging enterprises and small businesses inventory makes up a big portion of the numbers in the balance sheet. The large value of inventory a company carries demonstrates the need for a large quantity and variety of products on hand to meet the expectation of current and short-term future demand.
The goal is to find the right balance between having items in stock while not tying up too much capital in inventory before it will be needed. It’s this balancing act dilemma that ERP systems with inventory management software looks to solve, all the while setting up an organized structure to handle all inventory and warehousing processes.
Physical Processes of Inventory Management
ERP systems with inventory management solutions begin helping companies by establishing (within the system) the step-by-step tasks that happen when physically taking care of inventory. This includes movement, stocking, and other company-specific activities, but is basically all facets of the daily grind of receiving, processing, and shipping inventory.
All companies handling inventory collect data when transactions like shipping and receiving take place, to track both the items and the paperwork that comes with these items. In theory, this can be done manually, but for growing small businesses and enterprises it’s much easier to use bar-coding stock keeping units (SKUs) to facilitate the receiving process – an option with ERP systems with inventory management included, like Sage ERP X3.
To ensure that the number of actual inventory items being stored matches up with what is in a company’s ERP database, inventory management software accommodates perpetual physical inventory (PPI) measures. This means that the system provides information and processes that help with effectively controlling inventory over time, like allowing targets to be set, adjusted and monitored.
Planning for Inventory and Materials
Moving up the ladder from the physical aspects of handling inventory towards planning is where we can really see the case for benefits of having an ERP with inventory management capabilities. The focus here is to develop a system that meets the requirements and goals of a company’s stakeholders that are affected by inventory levels.
Companies will have varying strategies for handling inventory since, for example, companies dealing with high volumes will operate differently from lean or just-in-time manufacturers or distributors. ERP systems with inventory management solutions will support both strategies, with material requirements planning (MRP) helping to find the right balance of inventory items that are used and replenished often. This helps avoid stock-outs and lost sales due to crucial items not being available to the company and thankfully does so without taking up unnecessarily high amounts of working capital from the company’s funds.
The beauty of an ERP solution in managing inventory is that it connects information from all departments of a company. It takes information relevant to sales levels, finance, purchasing, production, and so on and presents it in a helpful way to plan approaches to replenish inventory.
Inventory Analysis and Optimization
We have covered the physical aspects of handling inventory and the planning that goes into how much inventory will be needed. Next there are the tools that help improve inventory management and control over the long run.
One of the big challenges for companies is to adjust for the tentative nature of supply and demand. To help adjust for fluctuations, an inventory solution takes advantage of historical data to provide analytical reports that help calculate the level of inventory needed. In addition to determining the right levels of inventory, the software solution will take into account the different locations the company uses, as is the case with Sage Inventory Advisor, which integrates with several Sage ERP systems.
Data from past demand also serves as the key for management to determine buffer levels, replenishment points, and overage. Since these should all be calculated using past performance and demand figures, this again highlights the importance of having an ERP system that takes information from various departments to manage inventory.
In past blogs, we have discussed at length the importance of inventory management, the solutions that exist to support inventory controls, and the rise of these solutions in the small and medium-sized enterprise marketplace. Hopefully, by shifting the discussion towards the practical aspects of managing inventory, some light is shed into how exactly ERP and inventory management software solutions support the operational processes and tasks associated with inventory management, helping small and medium sized enterprises achieve their goals.