7 key benefits of inventory management in ERP

An inventory management solution enables businesses to identify which stock to order, when and in what quantities. Effectively managing inventory is crucial, it affects every aspect of a business – from warehousing costs to the ability to fulfil customer orders accurately and promptly.

Inventory turns into revenue once it’s sold but ties up cash before it is sold, so too much stock costs money and reduces cash flow.

Some Enterprise Resource Planning (ERP) systems can manage inventory, such as Sage X3 ERP.  A robust, solid inventory management ERP should include comprehensive real-time inventory management to help business owners automate inventory tracking, planning and manufacturing. Here are 7 key ways an inventory management ERP, like Sage X3 benefits businesses.

1.    Increased efficiency

An ERP system provides a single source of truth across the business from finance to purchasing, sales, manufacturing and supply chain. It enables automated inventory management, eliminating overheads and reducing costs while facilitating the automation of operations to increase productivity.

2.    Better control of stock

Overstock becomes a thing of the past when a company can quickly see and react to surplus inventory. Whatever the reason for the surplus, such as a change in demand, the ERP system will highlight the excess stock immediately. The issue can then be dealt with quickly before it starts incurring additional costs instead of earning money.

3.    Valuation and costing

Inventory carrying cost is the total cost of holding and maintaining inventory, including storage, handling, insurance, taxes, depreciation, and opportunity cost. It is part of economic order quantity (EOQ) calculations, which help to identify the most cost-effective method for ordering new products by weighing inventory carrying cost versus the cost of ordering stock. By using these calculations and other effective ERP inventory management techniques, inventory investment can be optimised and waste reduced.

4.    Accurate inventory turnover

Inventory turnover ratio (ITR) is the financial ratio showing how many times a company sells its inventory and replaces it in a given period, usually a year. It indicates how well a business manages its inventory levels and demand.

  • High ITR
    • Selling inventory quickly to avoid excess stock
  • Low ITR
    • Holding too much inventory and risking obsolescence, spoilage and storage costs

An ERP system provides accurate data to enable the calculation of ITR by dividing the cost of goods sold (COGS) by the average inventory value.

5.    Customer satisfaction

The ability to provide the right products at the right time to meet customer demand by having the right information about products in stock ensures customer satisfaction. In addition, an ERP system will enable techniques such as drop shipping and back ordering to ensure customers get what they want and have visibility of delivery timelines.

6.    Supply chain transparency

Global supply chains add complexity to inventory control; therefore, inventory management is vital to supply chain planning. An ERP system can be integrated with other systems to allow communication directly with suppliers to minimise disruption. Furthermore, this will enable visibility of order and shipping information, giving transparency across the supply chain.

7.    Reporting and analysis

Decision-makers can increase inventory efficiency, as they fully benefit from data-driven insights by having access to accurate inventory data, which helps them to identify top-performing Stock Keeping Units (SKUs), landed cost of goods sold (COGS), turnover rates, shrinkage and sales by location and channel at each stage of the stock movement.

Additionally, they enable businesses to build powerful sales reports that can be used to track business success, gather insightful data, and plan for expansion.

An ERP system allows control across the entire inventory management chain; products must arrive in good condition, be assigned to the proper location, be tracked as they move through the warehouse and be dispatched in the right quantities to the right place. It will allow visibility of quantities in stock, on order, under inspection, travelling between sites and warehouses, allocated to sales, or assigned to work orders at any point.

ERP-driven inventory management also increases efficiencies throughout the supply chain and manufacturing processes. As a centralised system, it can cut down on the double-handling of goods, automate daily tasks, like reordering and keep enough raw materials and parts on hand so that production lines can fulfil orders, whilst tracking work-in-progress and finished goods, enabling at-a-glance stock level visibility.

Download our Inventory Excellence On-Demand Event to watch a demonstration on how to optimise inventory processes with Sage X3 ERP.

2024-01-31T14:17:22+00:00September 19, 2023|Blog|
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