Inventory management is, arguably, at the heart of any Enterprise Resource Planning system design. That makes sense, given that inventory records and transactions are the most likely to be digitized. And while some CRM systems bolt on inventory considerations as an afterthought, the best ones offer truly seamless visibility from customer order inquiries though to product volumes in the warehouse. At the most basic level of functionality, ERP inventory management maintains a perpetual inventory record that updates the accounting modules. Fundamentally, the system accepts inventory movement reports (transactions) and maintains a continuous record of the various quantities. Modern ERP systems expand on this essential task by developing features that increase accuracy and efficiency in inventory management. Here are five tools can and should be integrated within any inventory management system to give you the control and visibility to support your larger business operations.
Perpetual inventory records are highly dependent on timely and accurate reporting of inventory movements. Manual reporting can plague this process through delays, recording errors, missing transactions, and undue burden on a lean workforce to collect and enter the data with absolute precision. Thanks to its underlying standardization, automated data collection through bar-code scanning removes much of the reporting burden while greatly improving the accuracy and timeliness of transactions.
Accuracy is also critical to the effective planning and control of inventory. Unfortunately, even decent inventory tracking approaches are enormously challenging and inaccurate without an active and disciplined cycle counting system in place. Cycle counting replaces the overwhelming and error-prone annual physical inventory count. Instead, a periodic - and much more manageable - program of counting selected items is implemented in which more important items are counted more often than less important ones. The brilliance of cycle counting is that it provides a structure for identifying and eliminating the source of errors to improve accuracy in a sustainable way. Any inventory-conscious ERP system should enable cycle counting as part of its standard functionality.
Cycle counting is best structured around ABC analysis, which is used to identify those more and less important items. The most commonly used ABC analysis method (which has its roots in Pareto analysis) proceeds by ranking all inventory items according to the total value of each on an annual basis (i.e. multiplying annual "usage" or "movement" by unit cost). According to Pareto's 80/20 rule, the top 20% of items (A items) represent 80% of the annual value that flows through the warehouse. The next 30% of items (B items) account for 15% of the value. Finally, the remaining 50% of items (C items) total 5% of annual value. Assigning ABC classifications to inventory allows you to focus on the items that matter most by:
- setting meaningful cycle count frequencies
- driving logical item locations in the warehouse
- justifying lot sizing and safety stock rules
ERP systems that inherently support ABC analysis allow you to reduce idle inventory and order delay costs in order to get the highest return for your investment.
Integrated planning and execution
The primary objective of any ERP system with regard to inventory should be to flawlessly meet customer demand while simultaneously optimizing resources; thereby reducing costs. Therefore, the most robust ERP solutions seamlessly tie inventory management together with planning and execution capabilities. Fully integrated demand, use, and replenishment components minimize shortages and reduce overall inventory compensation requirements, freeing your business from the mire of broken supply chains and allowing you to concentrate on growth.
Serial and lot traceability
While serial number and lot traceability are by no means universal inventory management requirements, an increasing number of businesses are tracking this detailed information to ease the risk of recall. In addition to this fulfillment-side protection, companies are using the various traceability options to look forward. Life cycle information, product genealogy, popular configuration history, and lifespan performance data are among the traceability benefits available to business areas like research and development, engineering, product servicing, and spare part provisioning.
Integrated inventory management tools allow businesses to track the pulse of product flowing through their warehouses. This tracking is a requirement for both financial control and basic business management processes. The highest caliber ERP systems elegantly facilitate those functions. They are inherently designed to recognize that the management of inventory data is a valuable resource in the quest for performance improvement, higher levels of customer service, cost control, product development, and overall company success.