Effective inventory management is crucial to modern business because it provides a cushion to balance the uncertainties between supply and demand. It can be viewed in a positive manner; however, holding onto excess inventory can lead to problems. The physical space taken up by stock always comes at a price: inventory held in the warehouse ties up company cash and working capital which could potentially be used for other purposes. Lower inventory costs result in a higher return on assets. If business owners know that holding inventory costs money and negatively impacts the company cash flow, why not simply slash it to the bone? It’s a balancing act, to be sure, and inventory control software can help your company determine how much inventory to keep on hand at any one time.

Too little inventory also creates problems—for manufacturing, customer service, and maintenance. That is why the role of inventory management is so important—to balance the needs of the business to hold inventory against the costs it entails. One of the biggest uncertainties of inventory management is how much stock to hold to meet changing demand. Keeping the right level of inventory requires a technique called inventory optimization.

Inventory Management System

For a small manufacturing operation, with limited inventory items, a small storage area, and a few customer orders, a spreadsheet might manage inventory sufficiently. But for larger, complex environments, a more sophisticated inventory management system is needed to collect, process, manage, and report on all the data, in as near to real-time as possible. Failure to follow every incoming and outgoing inventory item can seriously impact turnover. Inventory management is therefore essential for any growing manufacturing company.

The role of inventory management is to maintain appropriate stock levels for the needs of the business. It helps to:

• track quantity of stock, including its quality and accuracy
• ensure compliance with applicable regulations through traceability
• optimize ordering and restocking
• improve customer service by having the right stock levels available at the correct location
• regulate stock movement and distribution
• manage inventory costs

 Inventory Management System Benefits

The benefits of using an inventory management system with inventory control software include:

• ensuring inventory is kept at optimum levels
• allowing inventory to be managed more closely
• lowering instances of lost or excess inventory
• boosting order fulfillment and on-time delivery rates
• reducing production interruptions due to stock shortages
• making tracking inventory more efficient
• increased visibility of inventory information for better, more informed decision-making

The problem with inventory is that the more variable the demand, the tendency is to hold more stock as raw materials for work-in-progress so production is not interrupted. It is not only since the pandemic that supply and demand stocks have demonstrated problems with current inventory methodologies and practices. Ten years ago, in 2012, various reports referred to turbulence in business as the “new normal” with volatility increasing and demand becoming more unpredictable.

Inventory Optimization Using Inventory Control Software

For manufacturers, the challenge is to get the stock levels required, keeping as little as possible while providing “just the right amount” of stock. The search for optimal inventory levels is therefore a key objective. Inventory control software is a valuable tool that can be used to achieve this goal.

Inventory optimization (IO) with inventory control software takes inventory management to the next level, providing a more dynamic and holistic approach which allows managers to assess various signals in the supply chain that may be relevant to managing inventory. It allows a business to estimate inventory levels to maximize profit and minimize waste. IO can model different potential outcomes using a number of variables and help to pick the best stock holding and re-ordering policy for each product group or set of stock items.

Using IO with inventory control software as part of inventory management gives a better view of demand, which will help in reducing both safety stock and overall inventory. It involves:

1. analyzing stock codes to determine importance and behavior before classifying them into similar groups
2. creating demand forecasts for each stock code—a high level of accuracy is the goal
3. monitoring the results of a stock policy to determine whether it can meet the dual requirements of high service levels and lower inventory
4. restocking according to the forecast and company stock policy

The key technical requirements when aiming for optimized inventory levels are data accuracy and timeliness. This is not typically found in situations where the technologies used are spreadsheets or stand-alone applications.

Data-related problems are far less likely to occur if the planning and optimizing of inventory is integrated with an ERP system. An integrated ERP solution, such as SYSPRO, eliminates issues of data accuracy and timeliness as well as the problem of synchronizing master data.

IO with inventory control software is not a one-off activity. It is a cross-functional process, involving many role players, and is therefore not easy. It requires continuous review and ongoing education but presents the opportunity for big gains. 

An ERP from PositiveVision Balances the Uncertainties of Supply and Demand

Managing inventory effectively is a priority for all manufacturers. It is a crucial component of any ERP system. When choosing an ERP for your business, you’ll want to ensure the one you choose has the capability to provide a complete overview of inventory. The inventory control software is a key component since it provides real-time data essential for effective customer service and overall business management. There will always be some uncertainty in the business environment; cash and customers will always be areas of concern. Inventory control software integrated with your ERP is a good investment for creating some balance when dealing with multiple uncertainties.

To discover more about the software solutions available and which options would be the best fit for your business, contact us today to speak to a product expert.