Inventory management is often the cornerstone of profitability for small and medium-sized businesses. Despite all your efforts to properly manage your inventory, you may have already experienced a shortage of certain items or, conversely, a surplus of other products, which then led to storage space issues. Every business that relies on the sale of physical products faces challenges in inventory management at some point.
While profitability is the ultimate goal of any good inventory management system, credibility with your customers is also at stake if you run out of products on a regular basis. Nowadays, customers can quickly find an identical or equivalent product from your competitors. If your product is considered essential by your customer and is missing from your inventory, they will undoubtedly buy it elsewhere, even if it is more expensive. ERP software can solve all your inventory management issues and allow you to effectively track the merchandise coming in and going out of your warehouse.
What is stock management?
A brief definition of stock management
Before digging deeper into how ERP software can help you maintain tight control over inventory management, let’s remember exactly what inventory management is. Depending on the type of business you operate and the products you sell, there are 3 types of products to be inventoried:
- raw materials, which are used in the preparation of your products and which you should never be short of at the risk of breaking the production chain;
- semi-finished products, which may come from your own production lines or from your suppliers.
- the finished products you manufacture or store until you sell them.
The important thing is to keep the right amount of products for your business volume at all times. The key to good inventory management is a clear understanding of the optimum quantities needed to run your business. ERP software will allow you to avoid running out of stock or amassing a surplus of products that will result in significant storage costs. This is what we call optimal stock: thanks to the forecasting and planning tools that ERP software offers you, you are able to maintain control and flow of your product inventory.
There are several methods available for inventory valuation. The ABC method is one of the best known. It consists of categorizing products according to their order of importance: products A are products of greater value to the company than products B and C. According to the Pareto principle, for many events, type A products generate roughly 80% of the effects on 20% of the quantity in stock. Another common method used in inventory management is the FIFO (First In First Out) method. As its name suggests, this method allows for optimal stock rotation. It is often used by agri-food businesses to reduce losses of perishable products. Other inventory management methods exist and are adopted according to the nature of the company’s activities. Drop Shipping has been gaining popularity in recent years. Another, more traditional method is periodic replenishment, which consists of ordering pre-determined quantities according to a set delivery schedule.
Why use ERP software to control inventory management?
In fact, ERP software is like a real management assistant that will allow you to control inventory management. In concrete terms, the implementation of ERP software in your company will help you to set up processes that will allow you to quickly achieve your profitability objectives.
Here is a non-exhaustive list of the results you can expect with the right ERP software.
- Have a global view of the situation at all times: inventory management with ERP software gives you a precise and always up-to-date overview of your inventory. Let’s face it, days closed due to inventory-related issues are a thing of the past. You don’t have to wait until the end of your fiscal year to know exactly what you have in your warehouses. ERP software gives you the quantities of each product and their location in real time. This enables you to anticipate which items need to be ordered or to make business decisions regarding excess inventory.
- Complement the inventory management methods that a company chooses: ERP software adapts to the inventory management method that you have chosen. Whether you use the ABC method or the FIFO method to account for your merchandise, this computer tool adapts to your management. You don’t have to accommodate your software, this tool is at your service.
- Improve employee efficiency: good inventory management improves the work of your employees, but also the quality of customer service. What is the current situation regarding the amount of time your employees spend searching for the location or quantity of products in stock? Do you hear phrases like “This item is listed in stock, but I can’t find it in the warehouse?” With ERP software, your employees share the same inventory status information as you do. Inventory is available on different platforms: desktop, cell phone or tablet computers. Access to your data is secure, regardless of the device used. All you have to do is ensure that your employees have the right technology to make their search profitable.
- Reduce waste: Non-Value Added, (NVA) operations are common in inventory management processes. By keeping inventory under control with ERP software, you can drastically reduce NVA operations. This type of management is part of a continuous improvement process that helps to reduce waste, loss of time and resources. It involves small changes in habits and operations that can have a very positive impact on your financial profitability and on the management of your human resources
The different types of ERP software to improve inventory management
Today, there are two main versions of ERP software systems available on the market. A distinction is made between on-premise ERP software and ERP SaaS software. As its name suggests, on-premise software is software that you purchase once and install on your organization’s servers. The purchase of an on-premise license allows all users to use the ERP software indefinitely. This is the most advantageous option if you plan to use your software on a long-term basis. However, you must take into account the maintenance costs related to the upkeep of your servers.
Currently, SaaS-based ERP software is very common in small and medium-sized businesses. Software as a Service (SaaS) is software that you buy as a service. The cost is calculated in the form of a subscription payable per month and according to the number of users. This is a very advantageous option for smaller teams, because the investment required is lower than purchasing on-premise software. In addition, you are assured of having an IT solution that is always up-to-date, without the headache of maintaining your internal servers.
Whether you opt for an on-premise ERP or SaaS software solution, inventory management cannot be left to chance. If you would like to know more about how ERP software can help you improve your inventory management and increase profitability, you can contact one of our ERP or CRM software specialists for any questions you may have regarding your inventory management.
If you want to learn how to choose the right ERP solution for your business, you can download our “10 criteria to select your new ERP software” ebook.