The Ultimate Guide to ERP Inventory Management

As a manufacturer, you know that inventory management is one of the most critical processes in your organization, especially if your business focuses on customer satisfaction. Inefficient inventory management can really hurt your business. Antiquated ERP systems with limited data functionality and key information sitting outside the system interfere with your ability to meet inventory and delivery requirements. Spreadsheet-driven inventory management with disconnected data inputs is prone to human error and results in inventory, delivery, and supply chain problems. Furthermore, when your company grows and expands, maintaining inventory at multiple warehouses and manufacturing sites can become a significant challenge. 

Inventory management can be much easier, more efficient, and cost-effective with an inventory management ERP. Keep reading to learn more about the role of ERP in inventory management, how an ERP inventory system can help your organization improve inventory management, and strategies you should try to improve inventory management.

What is ERP Inventory Management?

An inventory management ERP system helps manufacturing, distribution, and supply chain organizations manage all aspects of their inventory in real time, including costs, orders, products and materials in stock, supplier information, and much more. With an ERP for inventory management, every department in your organization gains full visibility into all inventory information. The result? Faster order fulfillment, fewer stockouts, and reduced inventory holding costs. 

How does ERP help improve Inventory Management?

There are several benefits of adopting an automated inventory management ERP system. The right system can greatly help improve your organization’s profitability by improving your forecasting, organizing your inventory, and reducing transportation time and carrying costs. Additionally, you can fulfill orders faster and more accurately, keeping your customers happy.   

1. Tracks Inventory in Real Time

An ERP inventory management system provides real-time inventory tracking, allowing you to automatically update your current inventory data to match actual inventory. Without real-time tracking, your employees don’t upload inventory data until later, sometimes waiting until they can batch load the data. Inventory data remains out of sync with actual inventory in stock until this process is complete. The problems only increase with multiple inventory locations.

An ERP inventory management system helps:

• Reduce out-of-stocks, deadstock, and preventable returns.
• Dramatically improve the accuracy of fulfillment and delivery, thus reducing returns.
• Increase visibility into your inventory, which helps increase the accuracy of forecast demand and other reporting metrics
• Improve tracking of inventory turnover.

2. Automates Workflows

Freeing your employees from time-consuming manual tasks is critical to increasing productivity and accuracy. An automated inventory management ERP can help your organization reduce data redundancy, stockouts, obsolescence, and excess inventory. 

With automated inventory management, you can:

• Reduce data redundancy: When identical data exists in multiple places, it can lead to inconsistent data, data corruption, and increased storage costs.
• Increase speed, efficiency, and accessibility: Streamline workflows such as inbound and outbound transfers, label printing, and bin tracking.
• Reduce obsolescence: Automated inventory management replaces outdated products with newer versions and sends automated backorder notifications and replenishment reports in real-time.
• Automate routing across multiple inventory locations: Save time, speed up fulfillment, and reduce shipping costs.
• Reduce carrying costs of excess inventory.
• Reduce stock-outs: Improve the customer experience by filling orders on time.

Take 60 Seconds to see how Rootstock Inventory ERP automates inventory management 

3. Increases Accuracy of Demand Forecasting

Accurate forecasting is critical to manufacturing companies. It begins with a deep understanding of past demand to help you predict inventory requirements. Forecasting indicators typically include factors such as the past growth rate, orders, promotional activity, the economy, and even political trends.

Accurate demand forecasts can help you lower costs and improve inventory management. A modern cloud-based system, such as Rootstock cloud manufacturing ERP, lets you analyze supply and demand requirements online and gives you actionable insights.

4. Helps Setup and Manage SKU’s Efficiently

SKUs (Stock Keeping Units) are the product codes that you and others use to search and identify stock from orders, invoices, or lists. SKUs identify and differentiate different products and help you monitor stock availability, product locations and types, sell rates, margins, profitability, and inventory loss.

If you are still using Excel spreadsheets or some other antiquated software to manage your SKUs, you already know how hard it is to maintain complex naming conventions for SKUs. A modern system like Rootstock Inventory Management ERP software maintains a unified naming system that does not require manual tasks. Rootstock also includes bar code scanning on mobile devices, bringing another level of efficiency to your inventory operations.

Features to Look for in an ERP Inventory Management System

An efficient ERP inventory system should first and foremost be customized to the dynamic needs of your organization. A modern, cloud-based solution rather than an on-premises ERP will help your organization optimize inventory, reduce costs, and meet its long-term growth goals. When searching for the right enterprise inventory management solution for your company, look for the following attributes.

• Accurate Inventory Management: The ERP system you choose should provide accurate digital records with instant access to all detailed inventory information, including transactions, customizable cycle counts, ABC category analysis, and more.
• Real-time Inventory Tracking on the Go: Look for a system that allows you to manage and track inventory in one or multiple locations in real-time from anywhere, using a cell phone or tablet.
• Supply Chain Management: Modern inventory management solutions should have supply chain management capabilities as well. This feature helps you analyze supply and demand requirements online to make informed decisions that help increase inventory turns and improve forecasting.
• Automated Inventory Management: Your organization is changing all the time, and automation helps you adapt to those changes quickly. An inventory management ERP should allow you to create your own customized inventory workflows to match your business requirements. 
• Full Traceability, Lot, and Serial Number Tracking: A modern inventory ERP should provide complete traceability with Lot and serial number tracking as well as comprehensive audit trail inquiries.
• Customer Relationship Management: A CRM that’s connected to your inventory management solution can help improve the relationship with your customers and help you fulfill orders faster. An inventory management ERP such as Rootstock can be combined with Salesforce CRM to provide a single source of data for all of your operations, including sales.
• Supplier Collaboration: Efficient inventory management isn’t possible without good supplier relationships. Your inventory ERP should provide capabilities for collaborating with suppliers, employees, and customers so you can drive efficiency by collaborating over data, ERP reports, business analytics, and more. Combining Rootstock with Salesforce Chatter improves customer and supplier relationships with messaging and social media collaboration tools built into the Salesforce Cloud Platform.

Best Practices for Improved Inventory Management in ERP

Now that you know the ways that ERP can greatly help improve inventory management, the next step is to learn how you can leverage an ERP system to help manage inventory more efficiently. Here are some of our tips for improving inventory management in ERP. 

1. Create Product Bundles to Increase Average Order Value

If you want to increase your average order value, create product bundles, which are groups or packages of separate items sold as a single unit. In modern inventory management systems, whenever a bundled item is sold, each individual item is automatically linked to the sale.

Product bundling offers several benefits:

• Track and maintain stock levels more effectively.
• Prevent deadstock by selling old or unwanted inventory.
• Increase average order values.
• Reduce holding and shipping costs.
• Offer customers flexibility and convenience.

To start using product bundles, first, define a pack size (or different pack sizes for multiple products), then select the products to be included in the bundle, and finally use real-time tracking to help you maintain enough stock on hand for each bundle variant.

2. Establish Inventory KPIs

Your team should establish inventory key performance indicators (KPIs) to measure your inventory performance over a specific length of time. Setting inventory KPIs gives you clear milestones for every week, quarter, or year.

Some useful inventory KPIs include:

• Inventory carrying costs.
• Rate of inventory turnover.
• Inventory write-off and inventory write-down.
• Cycle time.
• Order status and tracking.

A modern ERP that displays your KPIs as easy-to-read charts and graphs is the most efficient way to quickly see your inventory performance. Rootstock inventory management ERP comes with a range of KPIs ready to use out of the box, and lets you easily create your own KPIs as your business requires.

3. Categorize Your Inventory Using ABC Analysis

As a manufacturer, you need to maximize turnover, but first, you need to prioritize your inventory. ABC analysis (also known as ABC classification) is a technique used by inventory management teams to help identify the most important products and prioritize them over those less important products. ABC analysis categorizes your inventory into three categories (A, B, and C) to determine levels of importance. 

ABC categories are:

• A: Items of high value but small in number.
• B: Items of moderate value and moderate in number.
• C: Items of small value but large in number.

The decision to adopt ABC inventory analysis should be based on your own business strategies. If you do use it, keep in mind that many modern Cloud ERP systems such as Rootstock include the ability to use ABC analysis to categorize inventory.

4. Use Cycle Counting to Improve Inventory Accuracy

If it isn’t already, cycle counting should be one of your regular inventory best practices in ERP because it lets you see how accurately your actual inventory matches your inventory records. With cycle counting, you count a small amount of inventory on a specific day without having to do an entire manual stocktake. Regular cycle counts help you make sure that items accounted for in the inventory system are physically in stock.

Cycle counting offers several benefits to inventory management:

• It reduces safety stock.
• It’s faster and more cost-effective than a full stocktake.
• It can be done without disrupting your operations.
• It helps keep inventory holding costs low.
• It can be an effective anti-theft strategy.

Keep the following tips in mind when doing your own cycle counts:

• Count one category at a time.
• Choose count categories based on seasonality.
• Vary your cycle count schedule.

5. Carry Safety Stock

If you want to keep customers happy and reduce the chances of stock-outs, it’s recommended to carry safety stock. Safety stock is that small, surplus amount of inventory you keep on hand to guard against dramatic changes in demand and lead times.

Having safety stock offers several benefits:

• It guards against unexpected increases in demand.
• It prevents stockouts.
• It can compensate for inaccurate forecasts.
• It can serve as a buffer for longer-than-expected lead times.

Manufacturers who do not maintain safety stock inventory are the ones who must tell their customers, “Sorry, we’re out of stock,” and then experience a loss of customers, loss of revenues, and a decrease in market share.

See how Rootstock Cloud ERP ensures you always have the right inventory in stock at the right time.

6. Optimize Inventory Turnover Rates

Inventory turnover counts the number of times your inventory is sold or used in a specific time period. Inventory turnover rate is an indicator of sales performance – the higher the turnover rate, the better your sales. Your inventory management system should be able to calculate your inventory turnover rate, which will give you deeper insight into the demand for your products, the amount of obsolete stock you may be carrying, and what you should do to sell or stock more inventory.

Here are some ways to increase your inventory turnover rate:

• Experiment with pricing.
• Liquidate obsolete stock.
• Improve demand forecasting.
• Redistribute inventory to other locations.

7. Improve Relationships with Vendors and Suppliers Using Collaboration

You need to maintain strong working relationships with your vendors and suppliers, who are important partners in your inventory management system. Poor supplier communication often results in shipping the wrong parts and missing dates, resulting in shortages, missed targets, and increasingly poor relationships.

Here are a few tips to get your vendor and supplier relationships back on track:

• Establish clear expectations for communication and reporting: Once you set these expectations, you can provide a consistent platform for all communications.
• Know everything you can about the parts you need to discuss with your supplier, including part numbers: Having this information ready reduces emails and speeds resolution.
• Set up key metrics and track them: These metrics should include on-time delivery performance, quality performance, and cost performance.
• Keep your communications short and to the point.

Modern cloud-based ERP systems typically include collaboration tools out of the box. For example, Rootstock Cloud ERP is native to the Salesforce Cloud Platform and takes advantage of Salesforce Chatter, a platform collaboration tool.

8. Track Your Products Through Their Entire Lifecycle

Manufacturing companies need to be able to track their products through their entire lifecycle, especially in industries like medical device manufacturing that are heavily regulated. Lot and serial number tracking let you track products from raw materials and suppliers to purchase orders and customer records.

Lot numbers allow you to track the number of items, the cost of each group of products based on when they were made, and the expiration date. Serial number tracking allows you to select specific serial-numbered items to receive or fill orders.

Lot and serial number tracking helps your company define fulfillment strategies to minimize waste and ensure the most efficient use of your inventory. Modern Cloud ERP systems like Rootstock Cloud ERP also include full-level traceability trees and comprehensive device history, which not only help with regulatory compliance but also customer service.

Improve Inventory Management with Rootstock Inventory ERP

Great inventory management is critical to the success of any manufacturer. Fortunately, you don’t need to buy multiple software systems in order to benefit from improved inventory management. Rootstock Cloud ERP on the Salesforce Cloud Platform gives you all the tools you need to turn your inventory management processes into measurable outcomes for your company. 

With modern solutions like Rootstock Cloud ERP, your inventory no longer has to be an obstacle to your company’s success. Take 1-minute to see how Rootstock improves inventory management, or check out our free resources below.