Leveraging the Power of ERP to Optimise Inventory Management

Manufacturers and distributors can optimise their inventory management using some of the latest emerging technologies, including machine learning, data analytics, artificial intelligence, and cloud computing. Using proven inventory management processes, supply chain design, and planning helps optimise your stock.

Whatever inventory management methodology is chosen, the realisation that supply chains are vulnerable will require a re-assessment of practices and KPIs to keep goods flowing in a predictable and manageable way.

Where to start with inventory management?

Inventory exists because a buffer is needed to balance out the uncertainties between demand and supply. On the supply side, constraints such as large manufacturing batch sizes and supplier delivery lead time force organisations to hold some raw materials or components in stock to deliver products to customers.

Inventory management is the practice of having the right amount of inventory available to meet demand, both in the present and what’s expected in the future. Getting this right, the first time is impossible, as it involves multiple people, processes, logistics, warehousing, and more. Without the appropriate technology in place, the process can be highly cumbersome.

The role of inventory management is to decide and fine-tune what form of inventory should be held. The problem is that the greater the demand variability, the more stock should be held as raw materials or work-in-progress. Trying to reduce purchasing of inventory is a problem, as the lack of insight into inventory requirements can lead to loss of sales or stock outages.

Tackling the challenges of demand and supply with ERP

From a supply chain perspective, customers only know the value of their inventory tied up in the capital. This makes sense as it can be the most significant asset on the Balance Sheet. Customers do not always recognise the expense of ‘holding’ inventory. This expense includes lesser-known expenses such as storage, insurance, and security, to mention a few. On the other hand, building up large stocks of goods can make them redundant. In industries like food and beverage, procurement must factor in shelf life and regulatory compliance, which adds more complexity.

Today, demand is less unpredictable, with the pandemic-induced supply and demand shock demonstrating the fragility of the inventory methodologies and practices. In the last few years, it has become increasingly important to know in real-time what’s happening with raw materials and parts coming in, with work-in-progress and finished goods.

An ERP system helps manufacturers with improved decision-making by providing accurate inventory data from a singular system, improving efficiency. With ERP organisations are able to automate the necessary functions so that stock purchasing, organising and transferring stock are in sync. The system also helps maintain optimal levels of stock by integrating the needs of staff, customers and suppliers. In the new normal, a data-driven approach to inventory management provides the basis for better and faster decisions. This cannot be achieved by simply changing processes but requires investment in technology. The technology entails tools that provide real-time tracking and applications that automate and streamline inventory management.