If your inventory isn’t managed with precision, your business could suffer the costly consequences of poor customer service, loss of cost-effectiveness, and planning that’s out of sync with your actual needs. Pricing errors, product shortages and overages, shipping delays, a disorganized warehouse, unproductive employees…these are all hallmarks of poorly managed inventory.
But there’s hope for discrete manufacturers looking to improve their inventory management practices and results: according to Microsoft’s Midsize Business Center, companies that make inventory a priority end up decreasing their inventory costs by as much as 35 percent.
Making inventory a priority means putting real discipline behind it, and one of the most effective ways to do that is deploying an enterprise resource planning (ERP) solution. An ERP is a decision-making tool that makes it possible for manufacturers to gain more control and reduce inventory costs. With the right data and analytics, the insights these solutions provide help you:
1. Optimize Inventory Levels
With an ERP solution in place, as soon as an order is shipped, inventory levels are updated in the system. As stock levels change, notifications can be set to automatically alert the appropriate employees that they need to replenish inventory to meet customer demand.
2. Track Inventory in Real Time
Would you like to know exactly where everything in your facility is at any given moment? Paper systems come with a natural delay between the time an order is pulled and when the worker manually enters those items into the system, but an ERP gives you the status of inventory using item codes and instantly tracking products as they’re shelved, pulled, packaged, shipped, etc.
3. Plan for Inventory Updates
You can also accurately plan for inventory updates through a guided planning process that shows users the gaps that exist between current inventory levels and forecasted demand for each inventory item. The process also sends alerts and replenishment orders to keep inventory at an optimal level.
4. Demand Forecasting
By tracking and analyzing inventory, a company is also able to perform demand forecasting. The ERP system allows you to predict demand based on a multi-level forecast rather than relying solely on actual received orders. These forecasts allow users to anticipate future demands and adjust material planning accordingly.
5. Calculate Inventory Costs
In addition, an ERP system gives you the ability to calculate the landed costs of inventory in order to set more effective pricing strategies. After all, if a company can’t determine inventory valuation, then its pricing strategies are just guesswork, invariably leading to lost revenue.
Here are a few other things an ERP will do for your organization:
Allow You to Automate
Automation lowers inventory costs by improving the organization and management of the warehouse and inventory. Automation reduces the chances of human errors, some of which are extremely costly. Automation makes employees more efficient and effective, allowing the organization to “do more with less.” Finally, automation allows for better customer service because order processing and tracking is swifter and more accurate. Inventory, orders, and purchasing can all be automated by an ERP.
With an ERP, not only can you track when items are added to stock and removed from your inventory, you can also track raw materials and other supplies as they come in. This gives you visibility into your suppliers, showing you which are gradually raising prices, which are fastest to deliver on a rush order, which are typically delayed in delivering during adverse weather or other circumstances and other performance indicators. With this knowledge and insight you’re more equipped to negotiate prices and determine which to keep and which may need to be replaced.
Allow You to Respond Quickly to a Product Recall
Product recalls, though rare, can be a nightmare without an automated ERP system to identify products included in the recall and get them off shelves. With an ERP system, isolating the products is as simple as a worker entering the affected UPC, SKU number, etc. and indicating which products are to be pulled.
As you can see, an ERP takes much of the potentially costly guesswork out of managing inventory, leading to reduced costs and better customer service. Is an ERP right for your discrete manufacturing company? If your only objection is price, know that these systems, while powerful and sophisticated, are affordable for most discrete manufacturing companies, and offer great ROI by reducing labor costs, shortages, administrative costs, inventory levels – even materials costs.
Why not talk with our manufacturing experts – many of whom have been on your side of the desk, working in the industry prior to joining Wipfli.