Optimized supply chain control: a guide to ERP-driven inventory management

In today’s economy, the prices of raw materials and finished products are not always in sync, making cost control challenging for many companies. With supply chains spread across the globe, controlling costs becomes even more difficult, especially when working with limited budgets. With companies struggling to manage unforeseen external variables, this can lead to calculated risks becoming riskier propositions that strain budgets.

Consumer demand tends to fluctuate during specific peak and low demand times ( holidays or marketing campaigns). However, broader economic factors like downturns, inflation, or changes in consumer preferences can disrupt these patterns and cause mismatches in inventory, increased operational costs, and significant financial losses. Implementing adaptive demand planning strategies is crucial to handle such disruptions effectively

Supply chain disruptions can occur for reasons like natural disasters, geopolitical events, and supplier conflicts. These disruptions can impact the chain of events that leads to securing inventory. Disruptions in shipping routes may cause delays in importing or exporting products, which can affect sellers and distributors. Proactive management and real-time monitoring are essential to mitigate these risks and maintain operational continuity.

Managing multiple suppliers complicates inventory management due to varied lead times, quality standards, and reliability. These differences can lead to inconsistent supply levels, creating challenges in maintaining a balanced inventory, disrupting production schedules, and fulfilling customer orders on time.

The retail and e-commerce industry relies on strategic inventory management to align stock levels with varying consumer demand and purchasing patterns to ensure timely order fulfillment.
Inventory management systems assist retailers and e-commerce businesses in maintaining optimal shelf stocking and ensuring the handling of seasonal peaks to enhance customer retention and sales conversions with dynamic inventory updates and rapid order processing. Synchronizing inventory processes in physical and digital channels is called omnichannel inventory alignment.

In logistics and warehousing organizations, like distribution or storage centers, inventory optimization is critical for maximizing warehouse space utilization. To reduce fulfillment errors and improve delivery lead times, these companies use inventory management systems supported by Warehouse Management Systems (WMS) to deploy inventory management practices that enable precise stock-keeping unit (SKU) tracking, efficient order picking, and accurate inventory forecasting.

Product classification and segmentation mean prioritizing items based on sales velocity, perishability, storage requirements, and demand variability. Segmentation entails grouping similar items to improve inventory handling and accuracy.

Inventory control methods help businesses monitor and regulate their stock:

• Minimum order quantity (MOQ): The smallest amount of a product a vendor is willing to sell in a single order. MOQ helps businesses to plan inventory replenishment accurately.
• Economic order quantity (EOQ): EOQ is a formula that helps businesses assess the optimal order quantity by factoring in demand rate, holding cost, and other related metrics.
• Just-in-time (JIT) inventory management: This practice minimizes holding costs by synchronizing stock replenishment with actual sales demand, focusing on the timeliness of stock replenishment to reduce holding costs by restocking only when there is sufficient demand.
• Safety stock management: Maintaining extra stock to safeguard against sudden demand spikes, particularly during peak seasons, ensuring consistent supply chain performance.
• Abc analysis: This helps classify your inventory into three groups: A, B, and C. These groups are hierarchical, and products are grouped under these classifications based on revenue value, sales metrics, etc. This helps prioritize inventory management resources for items that are of high value.
• Ved analysis: VED stands for Vital, Essential, and Durable. As such, products and items are classified under these three groups to prioritize management efforts according to stock items’ criticality and turnover rate.

Inventory management systems are typically EITHER integrated within ERP software or delivered as standalone systems.
Unified ERP systems that encompass inventory management offer superior benefits compared to standalone inventory management solutions due to their multi-module design, which enhances the functionality of the inventory management component.