If asked to name the biggest challenge facing manufacturing supply chains, your first reaction might be to give the answer that’s dominating headlines lately: the skilled labor shortage. However, according to a recent study, supply chain executives reported that their biggest challenge in 2018 was visibility across the enterprise.
Effective inventory management and having visibility into the movement of goods throughout your supply chain is necessary in today’s highly competitive, cost-conscious manufacturing space. Ensuring the right stuff is in the right place at the right time requires a great deal of synchronization and process discipline.
Inventory affects every area of your business, and the latest enterprise resource planning (ERP) inventory management systems provide real-time solutions to help track those inventory quantities and statuses.
But We Already Have an ERP System
Using an ERP system as an inventory management tool is nothing new in manufacturing. In fact, the concept dates back to the 1960s when it helped monitor inventory, reconcile balances and provide status reports. During the 1990s, ERP systems expanded beyond an inventory tool to integrate other back-office functions, and they became commonplace as the rate of adoption grew by leaps and bounds.
Perhaps your company adopted ERP technology during that time, and now, 10 to 20 years later, you have scaled beyond its capabilities or realized that industry peers are leveraging updated technologies to gain a competitive advantage. Considering the advances in other areas of technology over the past five years alone — such as cognitive computing, mobile accessibility and robotics — it stands to reason that modern ERP systems have kept pace and have much more robust functionalities than those legacy systems.
For manufacturers that want to gain a competitive advantage and streamline operations even further, they should seriously consider an updated ERP system. With executive leaders in supply chain management listing visibility across the enterprise as their leading challenge, it’s clear the systems they’re currently leveraging may be lacking in this regard.
Let’s take a look at how using modern integrated ERP functions to pick, stage, consume, ship and track your assets provides up-to-date quantities and financial balances, and brings meaningful insights into your operations in four major areas.
1. Lead Times
Maintaining your items as part of a main master record — customers, vendors, items, etc. — in an ERP system provides you with the capability to leverage advanced planning functionalities to help manage on-hand quantities, determine rules or triggers for replenishment, and define cumulative customer lead times.
For example, as part of your planning process, you may generate a purchase order for a lot of items with a two-week lead time, but the actual date you can utilize those parts needs to take into account shipping and transit times in addition to any stocking, barcoding or inspection protocols you’ve established once the parts arrive. While the stated lead time is only two weeks, the actual availability date for those parts may be closer to three weeks.
Defining customer lead times, lot numbering logic, inbound receiving or inbound quality check lead times can all be combined in an ERP to deliver an accurate picture regarding item availability dates to those internal customers who need this information for other dependent operations. Production capacity planning and customer service can employ these calculated lead times to provide accurate availability information to your customers.
2. Cash Flow Management
Manufacturers that deal with products having a limited shelf life know the pain of discovering an item is approaching or has exceeded its expiration date after it’s too late. To mitigate potential loss, it’s critical to track product lot numbers, expiration dates, inventory movement and velocity. A slow-moving or incomplete inventory report can’t recognize when your on-hand balances are at risk. A modern ERP can trigger activities to deal with aging inventory before it becomes obsolete and loses value. These advance notifications allow you time to react and prevent inventory loss, no matter where that inventory is located.
Once notified, you can use that knowledge to make informed business decisions, such as accelerating consumption, running promotions or pre-packaging items to use up the affected materials. This minimizes the need to write off inventory for a loss and also reduces the need to purchase replacement materials sooner than anticipated. Rules-based alerts that are clearly visible to everyone on a dashboard can notify you after a set period of time from delivery or based on specific product information, for example.
3. Inventory Costs
ERP applications provide multiple costing methods that can be defined at the item level. Visibility into those inventory costs provides your finance team with important information related to on-hand inventory costs and can trigger a signal if overall inventory costs are getting too high.
The flexibility allows you to track inventory costs at varying levels of granularity, even down to the bin level at each warehouse location. The ability to drill down into the financial balance of inventory in such detail and to trace items up and down the supply chain provides flexibility in how you account for inventory.
4. Purchasing Compliance
Managing inventory inside a fully integrated ERP application also allows you to manage purchasing compliance activities. You can define default vendors, along with updated pricing tables that consider quantities ordered to determine pricing and potential discounts or rebates. Automatically triggering quality checks based on the item can also ensure the items purchased meet agreed-upon specifications.
Another major consideration is tracing defective materials. If a vendor notified you that a specific lot number was recalled due to a critical defect or contamination, for example, would you be able to quickly and efficiently trace where every piece of inventory from that lot was located? What products were produced using those defective goods, and which customers received them? How much did they receive, when did the items ship and how were they labeled or marked?
The investigative work required to track down all that information could take weeks without modern technology. With today’s ERP systems, however, the traceability of a lot number is as simple as clicking a button on a dashboard, which instantly displays details about where products are, who got them, what the corresponding sales order numbers are and more, allowing for quick action and intervention.
A modern, fully integrated ERP system provides effective and configurable inventory management functionality that reaches beyond just knowing where items are in your warehouse. Many departments rely on accurate inventory records to allow delivery of exceptional customer service. The integrated ERP, along with clearly defined processes that are strictly adhered to, help contribute to that success. To learn more, reach out to the ERP specialists at Wipfli to discuss your unique challenges and how today’s ERP can help improve your operations and your bottom line.