The Benefits of Inventory Management in ERP

What you can achieve with inventory management in ERP

Inventory is a major item on a manufacturer’s balance sheet that can seriously impact cash and working capital, and inventory management in ERP can contribute to improving it.

Using spreadsheets for inventory management and planning might have worked in the past, but it has become increasingly important to know in real-time what is happening with raw materials and parts delivery, warehouse stock, work-in-progress and finished goods.

Inventory management in an ERP system can provide the real-time information to track stock levels and locations, reduce inventory costs, and ensure enough stock is available to meet customer demand and manufacturing needs.

How integrated inventory management can help manufacturers

Inventory management in ERP integrates with other business functions, enabling accurate monitoring of inventory. Several inventory-related processes can be improved if managed properly.

• Inventory procurement: allow procurement insight into inventory requirements so that items are ordered in bulk to save costs instead of ordering individually.
• Demand forecasting: this can be improved by enabling multiple departments to collaborate using the same shared information.
• Customer fulfilment: sales, shipping and warehouse management should have visibility into deliveries to decide if some can be delayed to save on shipping.
• Inventory safety levels: generate alerts to the necessary departments if there is too little stock for customer orders or production, or if stock levels have been exceeded.
• Optimization: manage stock levels to ensure the right amount of the right items, in the right place, at the right time.
• Inventory counts: Cycle counting can be used more frequently to get updated values and counts, especially for key or high-value stock. Variances between stock counted and the General Ledger can be checked quickly. This avoids the interruption of a full stock count.
• Stock movement: An integrated system allows the sales and procurement departments to see which stock is not moving. This can avoid obsolete stock growing.

Data-driven approach

How much inventory is held depends on demand factors, supply lead times, manufacturing capacity, and stock-holding policies. With a data-driven approach to inventory management, this information can be accessed in real-time for better and faster decisions. For example:

• using historical sales data to identify trends and seasonality to forecast future demand and set optimal inventory levels;
• analysing data such as lead times, safety stock levels, and reorder points, to generate ordering recommendations;
• using the Internet of Things (IoT) to track the location and movement of inventory items in real time to improve warehouse efficiency and prevent stock-outs.

However, this cannot be achieved without the automation and tools of inventory management in ERP, which provides up-to-date information on critical business processes and allows streamlining of the inventory management process.

AI in inventory management

The use of AI in inventory management will become standard in a few years, It can help companies eliminate time-consuming and tedious inventory tasks.

For demand forecasting and planning, AI algorithms can handle a huge number of variables and analyse complex relationships to develop demand plans and predictions that usually exceed human-based forecasts in quality and quantity. Significant improvements can be achieved using AI, such as:

• reducing demand forecasting errors;
• making more efficient use of warehousing space;
• decreasing inventory and freeing up cash.

How inventory optimisation improves inventory

Inventory optimisation (IO) can help to address the challenges of managing the three forms of inventory.

• Basic stock: what is required to satisfy a demand forecast.
• Seasonal stock: how much should be stored in anticipation of demand increases that occur at certain times in the year,
• Safety stock: how much should be kept aside as a buffer against uncertainty.

IO takes into consideration storage capabilities, current inventory levels, supplier lead times and schedules, and future campaigns. It uses historical data and applies statistical techniques to allocate resources in the most effective way to satisfy competing requirements. But it needs to be part of inventory management in ERP in order to make a meaningful impact.

Benefits of integrated inventory management

With greater visibility of inventory through an integrated system, businesses have been able to improve efficiencies, increase revenue, and improve customer service, such as:

• better order fulfilment and on-time delivery;
• having the necessary items available so that manufacturing operations can continue, which improves plant efficiency;
• greater cost-effectiveness in warehouses through more efficient use of space;
• reduction in obsolete stock;
• better, more informed decisions as a result of reliable, up-to-date information.

Managing inventory better with an ERP

Excellence in inventory management is about having the inventory in place when customers want it. This requires:

• accurate forecasting;
• good procurement practices;
• ensuring raw materials are available when needed by production;
• knowing exactly where stock is held;
• efficient shipping from the warehouse.

Using inventory management in ERP allows manufacturers to operate more efficiently, reduce costs and offer better prices, improve service, and attract more customers.