ERP Software Consultants Review: Inventory Management Best Practices

ERP Software Inventory Management Best Practices

As ERP software consultants working with distribution companies over the past 30 years, we’ve worked with hundreds of customers to help manage their inventory more efficiently through implementing ERP software technology and adopting best practices for their operations. In this article, we will review best practices for inventory management and provide you with a worksheet to help you evaluate how to improve your warehouse operations.    We have developed these best practices for inventory management for our customers and hopefully this will help you get started with the process.

4 ERP Software Inventory Management Questions from Our Customers

1. How can I efficiently  track raw inventory coming in on the front end/receiving dock?
2. How can I accurately track finished goods going out the back end/shipping dock?
3. How do I track my inventory throughout my supply chain – specifically?
4. What are my customers going to order, and how fast do I need to get my products there?

If these are questions that you are asking yourself with any frequency, smoothing out your inventory process is something you could benefit from. With sophisticated reporting tools and strong resources, you can:

• track raw materials & finished goods
• deal with the entire pick, pack, and ship process
• understand how to segment your customer base
• correctly analyze what items are more profitable versus less profitable
• maximize your inventory turns
• minimize your inventory costs

Click below to download our Best Practices in Inventory Control Worksheet.

Over the years, industries have developed best practices such as analyzing A, B, and C stock, with A being your very important or good items, B being your important or medium items, and C being your “marginal" items. These are tracked in terms of quantity of sale, movement of units, and profitability. Because you might have some items that are highly profitable but don’t move quickly off the shelves, you may want to categorize each item on two (or more) factors.
From there, you can start using best practice algorithms to determine the best way to stock your warehouse. In addition to the A, B, and C stock method, you might also want to look at it from a customer segmentation standpoint because it's all about how your inventory actually moves. Some items might sell better to large retailers, some items might sell better on the west coast, etc. Analyzing by customer demographic or location is especially useful in a multi-warehouse situation.

The key is using historical data to smooth out your future flow. One way to do so is to remove the “peaks” and the “valleys” in your processes. If you had an uncharacteristic spike or drop in sales that isn’t indicative of what your sales process normally looks like, removing those will make your historical trends more accurate; you can then use that history to forecast the future – what will your next season/month/quarter look like? Keep in mind, however, that sales trend forecasts are like weather forecasts: impossible to get 100% correct.

Once you have this forecast (and potential safety stock to consider potential peaks), what you need to do is make sure that you consider your bill of materials regarding what you need, even if you’re not a manufacturer. If you are, for instance, a distributor that re-packages items or needs things that you don’t manufacture, you still need to make sure that you have all of those raw materials in the right place at the right time.

Really, the best way to do this is with an enterprise resource planning (ERP) system. The trouble is that, because ERP systems historically have been so expensive, many businesses are trying to manage all of these tasks manually. This usually means using Excel, which means a lot of manual input. Some businesses don’t know how to get historical data out of their system, and other companies are having to do multiple export, re-format, re-import routines because, for example, their system lumps the information together by month and they need to plan by week.
The problem is really more about the time and effort it takes to extract this information into a usable format. To use an analogy, using Excel for a job this big is like cutting down a tree using a Swiss Army Knife instead of the axe that you actually need.

The end goal is understanding how to segment your customer base, knowing how to analyze what items are more profitable versus less profitable, maximizing your inventory costs, and not filling your warehouse with stuff that's never going to sell and/or stuff that’s not profitable.

Historically, ERP systems and access to the information to accomplish these goals were out of reach. But the right system is now within the budget of most small and mid-sized distributors and manufacturers.  If you are considering different ways of improving your profitability, reducing your team’s workload, and improving your customer service, send us a message.
If you have questions about how to improve your inventory management, Southeast Computer Solutions will help you evaluate your options. CONTACT US ONLINE or by phone at 305-556-4697.

Since 1985, Southeast Computer Solutions has been a top Sage Authorized Business Partner helping small to medium sized businesses get the right software to run their operations. With over 600 Sage software installations and implementations across the United States and in Latin America, Southeast Computer Solutions is the largest Sage business partner in south Florida. We pride ourselves on technical expertise, real-world business experience and spirit of true partnership with our clients. Headquartered in Miami, Florida, Southeast Computer Solutions serves the small to medium sized businesses in a wide range of industries from West Palm Beach, Pompano Beach, Coral Springs, Sunrise, Fort Lauderdale, Hollywood, Pembroke Pines, Hialeah, Miami, Doral, Coral Gables and other locations. We also serve the international community including Mexico, Caribbean Islands, Central America and South America.

Another version of this blog was posted on Southeast Computer Solutions’ Blog: Inventory Practices, Best to Follow

Photo courtesy of Stuart Miles on www.freedigitalphotos.net