What is ERP Inventory Management Software?

Last Updated: October 20th, 2023
Researched and Written by: Russ Davidson

Companies with the happiest customers and the highest profit margins excel at inventory management. Ensuring your ERP software has robust inventory management capabilities will help your business handle the complexities of daily operations, all within a single unified platform.

These all-inclusive systems have a host of critical features like stock management, order fulfillment, analytics, and reports to help businesses efficiently manage inventory.

What Is ERP Inventory Management?

ERP inventory management simply means you have an ERP system that includes an inventory module, rather than a running a dedicated inventory software along side other disparate systems.

This module helps companies with inventory needs, by effectively managing their business within one centralized platform. This is since an ERP will typically also have modules for procurement and sales orders.

Additional functions may include planning, logistics, finance, and operations.

ERP inventory management systems compile real-time data to analyze, automate, and facilitate essential business processes.

While some smaller companies can survive on less robust and unconnected software tools, an ERP inventory management system is necessary for medium-to-large businesses with plans for growth or who want to simplify complex supply chains and workflows.

Businesses that use the “Just In Time” (JIT) inventory management technique, in particular, benefit from this system’s robust forecasting and automation tools.

ERP Inventory Management Common Challenges

Common Inventory Challenge #1: Shortages

To help you maintain profitability and customer retention, you can set minimum inventory levels with an ERP inventory management system. The system will alert you when inventory is getting low, allowing you to replenish the product in a timely manner. With additional automation tools, the system will create and send purchase orders to help with replenishment.

Common Inventory Challenge #2: Overstock

Inventory management systems analyze historical sales data to predict consumer demand. This feature saves your business money and warehouse space by preventing excess inventory from accumulating.

Common Inventory Challenge #3: Dead Stock

Deadstock, or inventory unsold or unused during a specific period, costs your business money every day it takes up valuable warehouse space. ERP inventory management tracks manufacturing and expiration dates to alert you when stock isn’t profitable anymore.

Common Inventory Challenge #4: Turnover

Inventory turnover is the number of times inventory is sold or replaced during a specific time period.

Turnover = Cost of Sold Goods ÷ Average Inventory Value

Knowing the turnover rate enables decision-making for pricing, marketing, manufacturing, and adding new inventory. ERP inventory management can automate this process.

ERP Inventory Management Features

How Does ERP Help In Inventory Management?

ERP Inventory Management Feature #1: Stock Management

Stock management tools help manage inventory control, tracking, storing, and ordering every item in a manufacturing business. These items include everything from raw materials to finished products. Effective stock management considers supply and demand to maintain proper inventory levels.

Stock tracking is vital for organizing and locating all items in a warehouse. With an ERP inventory management system, you can track items with tools like barcodes, serial numbers, or RFID asset tracking.

ERP Inventory Management Feature #2: Warehouse Management

The warehouse management module automates processes and gives real-time visibility into staff productivity, order fulfillment, demand forecasting, and inventory. This module controls and monitors shipping, receiving, order picking, tracking, and more. Benefits include error reduction, space maximization, stock control, and employee productivity monitoring. This module can also track employee compliance with health and safety regulations.

ERP Inventory Management Feature #3: Customer Relationship Management (CRM)

To effectively manage customer data, inventory management ERPs offer modules or integrations for CRM systems. This database tracks customer information like contacts, order history, contracts, and communication history between sales agents and customers.

Connecting a CRM with your ERP leverages data to optimize lead times, increase sales, and improve customer relationships.

ERP Inventory Management Feature #4: E-commerce

B2B e-commerce solutions are vital for connecting and managing relationships between suppliers and customers. These tools, offered as pre-built modules or third-party integrations with platforms like Shopify, help wholesalers and retailers sell online. You can boost sales with functionality that leverages data and delivers up-sell and cross-sell recommendations.

ERP Inventory Management Feature #5: Payment Gateway

Accepting credit cards and electronic payments is simplified with an integrated payment gateway. This remotely hosted software allows merchants to manually enter transactions and set up recurring payments. The payment gateway sends transaction data to the payer’s financial institution, which will then deposit the funds into your account.

ERP Inventory Management Feature #6: Analytics and Reports

Demand forecasting is an essential part of managing an efficient supply chain. ERP inventory management software provides real-time data on product performance and consumer behavior to optimize the supply chain, increase fulfillment speed, and prevent stockouts.

Accurate data collection and key inventory metrics analysis help businesses increase sales, profits, and customer satisfaction.

ERP Inventory Management Benefits

ERP Inventory Benefit #1: Supply Chain Transparency

Supply chain management is a crucial facet of inventory management. An ERP system helps sync inventory, order, and shipping information across the whole supply chain to prevent shortages, stockouts, and shipping delays.

Supply chain management modules also track manufacturing processes, distribution, logistics, and demand, then use this information to recommend purchase orders.

Instead of fully outsourcing shipping requirements to third-party providers, ERP inventory management allows you to integrate with providers’ systems to communicate effectively with them every step of the way.

This connectivity enables direct communication between suppliers and partners to ensure full supply-chain transparency and quick problem-solving.

ERP Inventory Benefit #2: More Accurate Data Collection and Reporting

Data accuracy is a must-have for all businesses, especially those that manage warehouses full of inventory. However, even minor errors can create expensive problems like order fulfillment disruptions and inaccurate inventory projections.

Properly implemented automatic data collection saves time and eliminates the need for human-error-prone manual data collection. ERP software collects data from all integrated business systems, facilitating better analytics, forecasting, and decision-making. More accurate reports benefit your operations and increase your profitability.

ERP Inventory Benefit #3: End-to-End Inventory Analysis

ERP inventory management tracks and analyzes inventory to give you a complete picture of your operations. These systems provide real-time analysis of key inventory metrics like cost of goods sold, turnover rates, excess inventory, and shrinkage. This analysis helps with quality control and stock optimization, which can help improve inventory efficiency and overall customer satisfaction.

ERP Inventory Benefit #4: Quality Check Automation

Most ERP systems allow you to configure specifications for automatic quality checks. It can check products for compliance with industry-required quality, safety, and environmental standards. The system will notify staff if any items are determined to be non-compliant.

ERP Inventory Benefit #5: Inventory Planning

ERP systems help businesses maintain optimum stock levels and assist with material requirements planning.

These systems include tools for:

  • Production scheduling
  • Setting reorder levels
  • Setting inventory minimums and maximums

They also record:

  • Manufacturing times
  • Lead times for raw material purchases
  • Inventory history
  • Stock availability
  • Quality checks
  • Packaging specifications

Effective inventory planning reduces customer lead times and helps make better forecasts. These tools combine to compile real-time inventory data to reduce significant material and financial waste.

ERP Inventory Benefit #6: Cycle Counting Optimization

Regular cycle counting is a vital inventory auditing procedure, and ERP systems can help streamline this time-consuming process. These systems guide staff through a thoughtfully-planned counting process to help simplify this operation and improve the quality of inventory records.

ERP Inventory Benefit #7: Cost Savings

Using a centralized ERP inventory management system can have significant cost savings. Features and modules are built to streamline inventory processes and make businesses more efficient and profitable.

Automating critical inventory processes reduces human workload and data collection errors. Reducing inefficiencies and data errors can prevent unnecessary purchases, inventory shortages, deadstock, poor turnover rates, overstaffing, and overstock-- all of which can have significant financial implications.

ERP systems monitor sales and inventory levels to ensure best-sellers are always in stock, which improves customer satisfaction and retention. Also, these systems can recommend price optimization during demand fluctuations to increase profits and maintain healthy stock levels.

ERP Inventory Management Techniques

ERP Inventory Technique #1: Just In Time (JIT)

To reduce inventory storage costs and minimize waste, businesses practice JIT inventory management. With this technique, you only store the amount of inventory you need to maintain daily operations, and you only replenish stock when it is close to depletion.

JIT can be risky when demand fluctuates, and you don’t have enough stock to fulfill increased orders.

Companies using this inventory management technique need forecasting tools that help prevent shortages and overstock, both costly problems.

ERP Inventory Technique #2: Minimum Order Quantity (MOQ)

The minimum order quantity technique mandates a minimum number of units that must be purchased at a time. Suppliers usually set this number to maintain their profitability and cash flow.

ERP Inventory Technique #3: ABC Analysis

In the ABC Analysis technique, inventory is classified into three categories ranked by price and control level.

  • Category A: Expensive, strict control
  • Category B: Less expensive, moderate control
  • Category C: Least demand & cost, minimal control

This technique is based on the Pareto principle, which states that 20% of your highest-performing inventory accounts for 80% of your revenue.

ERP Inventory Technique #4: FIFO and LIFO

With the First In First Out (FIFO) technique, the items that arrive at the warehouse first are used first. This technique is usually used by the food industry and other industries that involve perishable items.

Typically for non-perishable items, Last In First Out (LIFO) is an inventory accounting technique that assumes the most recently purchased inventory is sold first. Since more recently purchased inventory is usually more expensive than older inventory, using the cost of the new inventory to calculate cost of goods sold (COGS) can give companies a tax benefit.

ERP Inventory Technique #5: Economic Order Quantity (EOQ)

Both economic order quantity (EOQ) and JIT techniques have goals to save inventory space and reduce waste, but there is a distinct difference in these inventory management methods.

In the EOQ technique, businesses calculate the optimum amount of inventory to minimize costs. This calculation balances purchasing costs, carrying costs, and customer demand.

ERP Inventory Technique #6: Dropshipping

Dropshipping is the practice of manufacturers sending goods directly to customers. The retailer does not keep any stock and instead acts as a middleman between the customer and the manufacturer. The retailer will typically sell these dropshipped products at a significant markup.

Since the retailer doesn’t hold any inventory, inventory management involves communication between the retailer and the manufacturer. The manufacturer shares data like inventory levels and product changes. This data sharing can be done manually, with automated software, or with a custom API that sync’s the supplier’s inventory data.

ERP Inventory Management Things To Look For

Things To Look For: Purchase Order and Invoice Management

An inventory management ERP can automate the time-consuming purchase order and invoicing process.

When this system alerts itself to replenish stock, it can automatically generate purchase orders and track and resolve them.

Invoice management begins with payment gateway and POS integrations. As soon as a customer places an order, the system creates an invoice, sends it to the customer, then tracks and resolves it.

For both purchase orders and invoices, the system tracks the delivery of the product either to the warehouse or the customer.

Things To Look For: Multi-Channel Inventory Management

Retailers use a multi-channel inventory management process to manage inventory sold from different outlets and across multiple warehouses. Inventory management ERP systems with these tools can help companies more effectively track insights like inventory turnover and demand forecasting.

These systems synchronize inventory data from all of your sales channels and warehouses to ensure:

  • stock replenishments are made in a timely manner
  • stock is locatable at each warehouse or retail location
  • customers receive their orders on time from the warehouse closest to them

Having tools designed to manage multiple channels effectively ensures inventory transparency and improves overall customer satisfaction.

Things To Look For: Warehouse and Stock Tracking

No matter the size of your business, you can only meet demand if you know where your products are.

Inventory management systems can help optimize warehouse design and inventory organization to ensure that raw materials and finished products are easily accessible.

These systems can also streamline receiving, picking, and packing operations to ensure every product goes where needed.

Automating these processes ensures that product doesn’t go missing and orders are fulfilled.

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