What is an ERP Inventory System? Benefits & Features

mark599704
Dec 20, 2023
11 min read

Updated: 5 days ago

What is an ERP Inventory System? Benefits & Features

Companies that manage inventory well make more profit. They also keep customers happy. They do this by using the smallest amount of money on stock while still meeting demand.

Good inventory management depends on data. This includes information about buying, reordering, shipping, storage, receiving goods, customer satisfaction, preventing loss, and how fast stock moves in and out. Inventory management systems collect this information. When companies connect these systems to their enterprise resource planning (ERP) system, they gain a strong advantage. The biggest advantage is that all parts of the business can share information instantly, in real time.

What Is ERP Inventory Management?

ERP inventory management is a system that helps a business run all its main operations on one platform. This includes inventory, finance, planning, logistics, and daily operations. An ERP inventory system gives real-time inventory information to everyone in the company. This is very important for businesses that want to grow, have complex processes, need automation, use “just-in-time” methods, sell many products, or want to get the most value from their inventory.

How ERP Inventory Management Benefits Your Business?

ERP systems use data from many parts of the business. This helps companies understand how each product (SKU) has performed in the past. With this information, businesses can make smarter ordering decisions. They can also create better forecasts so they have enough stock for future demand without buying too much. ERP inventory management also makes the whole supply chain work more smoothly. Because everything is in one system, businesses can avoid doing the same work twice. They can also automate daily tasks, such as reordering items.

Other benefits of using ERP for inventory management include:

Supply chain transparency: When a business connects its back-end systems and shares information with its partners, it reduces surprises. This helps prevent problems like missing parts, late deliveries, or unexpected price changes. An integrated ERP system also makes it easy to match and update order and shipping information across the whole supply chain.
More accurate counts: ERP systems help track extra stock, shortages and when items need to be reordered. They also show old or slow-moving inventory and key numbers like turnover rate and cost of goods sold. In the warehouse, the system follows products as they move through shipping and receiving. This keeps counts correct and up to date.
Improved reporting: Accurate inventory data helps leaders make smarter decisions. They can see which products sell best, the true cost of goods, and how sales vary by location or channel. ERP systems allow businesses to create custom reports. This means the data is clear, useful and quick to access without extra manual work.
End-to-end inventory analysis: ERP systems give analytics for every step of the inventory process. They show numbers like cost of goods sold, turnover rates and shrinkage. By studying these key metrics, companies can improve how they manage inventory and work more efficiently.
Quality checks: Most ERP systems let you set rules for checking product quality. For example, if items must meet safety or environmental standards, you can enter those rules into the system. The ERP will then look for the required safety information. If something seems wrong or missing, the system will alert staff so they can fix it.
Inventory planning: Each product has an inventory status in the ERP system. This lets staff, partners and customers see what is available, how many are in stock and what is on order. Easy access to inventory history and data makes planning simpler and helps improve customer satisfaction.
Cycle counting: An ERP system helps staff follow a clear and organized cycle counting process. Doing regular cycle counts acts as a check-and-balance system. It keeps inventory records accurate and improves overall warehouse operations.

19 ERP Inventory Benefits

Capability	Benefit
Track and manage stock	Automatically collects data and reports on extra stock, shortages, slow-moving items, and inventory turnover.
Manage sales and purchase orders	Creates, tracks, and resolves sales and purchase orders, linking them together.
Multiple warehouse management and stock transfer	Tracks goods at each warehouse and across multiple locations so you know where everything is.
Payment gateway capabilities	Lets companies accept different payment types, like ACH, credit, and debit cards.
Integration with ecommerce, shipping, or accounting	Works with or includes modules for ecommerce, shipping, or accounting functions.
Operational tools	Offers tools for ecommerce, transportation, or manufacturing, depending on business needs.
Digital data collection	Reduces or removes manual data entry.
Intelligence reports and analytics	Provides updated reports tailored for key decision-makers.
Accounting package	Combines accounting functions with inventory management.
Wholesale distribution	Supports distribution and supply chain management.
Picking and packing	Shows the status of picking and packing and highlights problems.
Point-of-sale (PoS) support	Tracks sales in real time and provides sales insights.
Customer relationship management (CRM)	Combines backend and customer-facing information.
Track locations, transactions, and costs	Gives an overview of all inventory movements.
Calculate materials and weight	Helps staff make informed decisions about materials.
Shipping/delivery process	Documents shipping so staff can track production timelines and create receipts.
Multi-channel order fulfillment	Tracks and manages orders for businesses selling on multiple channels.
Drop-shipping	Lets ecommerce businesses send customer orders to other retailers if stock is missing. Acts as a dashboard and payment tracker.
Cross-docking	Tracks goods moved directly from inbound to outbound vehicles for faster delivery.
Cloud-based	Software is hosted offsite, ideal for companies spread across locations or with limited IT resources.

Use this list to focus on the features your company needs now and in the future. Don’t let the limits of your current system stop you from identifying what your business really requires.

Major Functions to Look for in an ERP Inventory Management System

Think about long-term potential. A new ERP system touches many parts of your business and takes time to set up. Make sure it meets your needs now and in the future. Avoid systems with limited features that you might outgrow in three to five years. Here are five steps to help you choose the right system for your business:

Step 1: Identify Your Intended Outcomes

Think about the goals of everyone involved in the business. Create a clear business case for the ERP system. Look at business trends, opportunities, internal resources, and strengths.

Ask yourself: How does this system fit with long-term goals? What new insights will it give for managing inventory that we don’t have now?

Step 2: Scope Out the Project

Decide which data sources need to connect to the ERP system. Think about which partners, like suppliers, will need access. Make a list of the features and functions the system must have to achieve your goals.

Step 3: Develop an ROI Analysis

Look beyond just saving money. Focus on how the system can make your business more profitable, efficient, and improve customer experience. Show clearly how the ERP will help your company grow by managing inventory better.

Step 4: Draft a Vendor List

Find systems that can meet your needs. Look at case studies of businesses like yours.

Ask these questions to narrow down your options:

Is the system flexible, easy to connect, and scalable?
Do other companies in our industry give positive reviews?
What training is needed? Can the company provide it?
Is there a trial or free version to test?
What is the cost upfront or monthly (for cloud systems)? Are there maintenance fees?
How long will it take to get the system running?

Step 5: Look Ahead

Check the vendor’s future plans for the system. Make sure their roadmap matches your business needs. Use this checklist when deciding if an ERP inventory management system is right for your company.

Getting Up and Running With ERP Inventory Management

To get the most from an ERP inventory system, follow an implementation roadmap. There are three main steps:

Establish the record: Put all important data and functions into one ERP system. Or, connect necessary legacy systems to your ERP for real-time updates.
Elevate the record: Add other functions like payroll, purchasing, and advanced analytics. Having all tasks in one system improves performance.
Expand with advanced ERP functions: Use sophisticated ERP features such as planning, analytics, and quality management. These help your business adapt and grow in changing markets.

ERP systems cover many areas of a business. Use the roadmap to move from your current state to full control of your inventory.

8 Features of ERP Inventory Management Systems

ERP software gives many benefits for managing inventory. Businesses in different industries can use these key features to improve operations.

1. Automates Business Operations

ERP systems can automate many manual inventory tasks. They can handle purchase orders, update prices across channels, and restock inventory. This makes operations faster and reduces human errors. Automation also shares information instantly across teams and departments. Everyone works with the same accurate data.

2. Enhances Customer Service

ERP systems give employees current customer data and purchase history. This helps them answer questions and solve problems faster. Customers get better service. Many ERP systems can also connect with your CRM. This puts all customer information in one dashboard for easy access.

3. Seamlessly & Fully Integrates Information in Real-Time

ERP software connects all business information in real time. It updates inventory data automatically and gives current demand forecasts. This helps prevent problems like running out of stock or having too much inventory.

4. Improves Data-Driven Decision-Making

ERP systems centralize and update data automatically. They provide accurate, consistent reports. With this real-time and historical data, you can forecast revenue better and make smarter decisions about managing inventory.

5. Analyzes Customer Purchasing Behaviors

ERP systems collect data on what customers buy. They analyze customer behavior to help you understand trends. This helps you manage inventory better, plan for slow periods, and keep the right stock on hand.

6. Offers Advanced Data Security

ERP systems are more secure than spreadsheets saved on a computer. They are backed up in the cloud. ERPs also let you control who can see customer data, keeping information safe.

7. Improves Product Identification

ERP systems use codes and numbers to identify products. This makes it easier to organize inventory. It also gives a clear view of all your stock across locations.

8. Provides Visibility Across the Entire Supply Chain

ERP systems give real-time updates on inventory. This lets you see stock levels across the whole supply chain, including warehouses, stores, and other locations.

8 Tips for Improving Your Business’s ERP Inventory Management

To get the most from your ERP inventory system, follow these tips:

Integrate With Other Systems: Connect your ERP with other systems like CRM, accounting, or eCommerce platforms. Integration prevents data silos and ensures smooth information flow between departments.
Optimize Inventory Levels: Set the best reorder points and safety stock to match supply with demand. This lowers holding costs. Use past sales and lead-time data to keep enough stock without having too much.
Establish Vendor Management Processes: Track supplier performance to make sure deliveries are reliable and on time. If a supplier cannot meet your needs, consider finding a new one who can consistently fill orders.
Conduct Regular Audits: Do regular physical inventory checks to make sure the system is accurate. Audits help keep data correct and find differences between actual stock and system records.
Automate Inventory Processes: Use your ERP system’s automation features to handle ordering, tracking, and reporting. This reduces manual work, lowers errors, and lets staff focus on important tasks.
Implement Real-Time Tracking: Use real-time tracking to manage inventory proactively. This helps ensure the right products are in stock when customers need them.
Leverage Data Analytics: ERP systems have reporting and analytics tools. They show trends in inventory performance. Use this data on top-selling products to make smart decisions.
Train Employees: Give staff full training on the ERP system and inventory management. Well-trained employees keep data accurate and manage inventory effectively.

Best Practices for Improved Inventory Management in ERP

ERP systems can greatly improve inventory management. The next step is learning how to use ERP to manage inventory more efficiently. Here are some practices to help improve inventory management using ERP.

1. Create Product Bundles to Increase Average Order Value

Product bundles are groups of separate items sold as one unit. Modern inventory systems automatically link each item in a bundle to the sale.

Benefits of product bundling:

Track and manage stock more easily.
Reduce deadstock by selling old or slow-moving inventory.
Increase the average order value.
Lower holding and shipping costs.
Give customers more options and convenience.

How to start:

Decide on a pack size (or multiple pack sizes).
Choose the products for the bundle.
Use real-time tracking to keep enough stock for each bundle.

2. Establish Inventory KPIs

Set inventory key performance indicators (KPIs) to measure how well your inventory is performing over time. KPIs give clear goals for each week, quarter, or year.

Useful inventory KPIs:

Inventory carrying costs
Inventory turnover rate
Inventory write-offs and write-downs
Cycle time
Order status and tracking

A modern ERP shows KPIs in easy-to-read charts and graphs. This makes it simple to track inventory performance. Some ERP systems, like Dynamic Distributors, include ready-to-use KPIs and let you create custom KPIs as your business grows.

3. Categorize Your Inventory Using ABC Analysis

To maximize turnover, prioritize your inventory. ABC analysis helps identify the most important products. It sorts inventory into three categories:

ABC categories:

A: High-value items, but few in number.
B: Medium-value items, with a moderate number.
C: Low-value items, but many in number.

This method helps focus on items that matter most.

Advantages	Disadvantages
Helps forecast demand by analyzing product popularity over time	May overlook products that are just becoming popular
Improves time management and resource allocation	Can conflict with other inventory strategies
Increases inventory accuracy	Requires time and staff to implement
Supports strategic pricing decisions

Deciding to use ABC inventory analysis should match your business strategy. If you use it, note that many modern cloud ERP systems, like Dynamic Distributors, can help categorize your inventory using.

4. Use Cycle Counting to Improve Inventory Accuracy

Cycle counting should be a regular ERP inventory practice. It checks how closely your inventory records match actual stock. Instead of counting everything, you count a small portion of inventory on a set day.

Benefits of cycle counting:

Reduces the need for safety stock.
Faster and cheaper than a full stocktake.
Can be done without stopping operations.
Helps keep holding costs low.
Can help prevent theft.

Tips for cycle counting:

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

5. Carry Safety Stock

Safety stock is extra inventory kept on hand to prevent stock-outs. It helps protect against sudden changes in demand or delays in supply.

Benefits of safety stock:

Protects against unexpected increases in demand.
Prevents stock-outs.
Makes up for inaccurate forecasts.
Acts as a buffer for longer-than-expected lead times.

Manufacturers without safety stock risk losing customers, revenue, and market share when items run out.

6. Optimize Inventory Turnover Rates

Inventory turnover shows how many times your stock is sold or used in a period. A higher turnover rate means better sales. Your ERP system can calculate turnover rates and give insights on demand, old stock, and how to manage inventory.

Ways to increase turnover:

Adjust pricing strategies.
Sell off obsolete stock.
Improve demand forecasting.
Move inventory to other locations where it sells better.

7. Improve Relationships with Vendors and Suppliers Using Collaboration

Strong relationships with vendors and suppliers are important for inventory management. Poor communication can cause wrong shipments, missed deadlines, shortages, and damaged relationships.

Cultivating Long-Term Relationships with Liquidators and B2B Buyers

Tips to improve supplier relationships:

Set clear expectations for communication and reporting. This keeps all communication consistent.
Know details about the parts you need, like part numbers. This reduces emails and speeds up problem solving.
Track key metrics, such as on-time delivery, quality, and cost performance.
Keep communications short and clear.

Modern cloud ERP systems include collaboration tools. For example, Dynamic Distributors Cloud ERP uses Salesforce Chatter to help teams and suppliers communicate easily.

Do You Need Inventory Management? 3 Questions to Ask

Businesses can use these questions to check if their current inventory system is working well:

1. Does my current system help me plan?

Your system should show you how long it takes to restock items. It should also tell you what inventory you have, when to reorder, how fast items sell, and who is buying them.

2. Does my system give me useful insights for the future?

With today’s supply chain problems, you need a system that helps you plan for growth and spot changes in demand early. This helps you avoid running out of stock and losing customers to competitors.

Related Blog:

Overstock Due to Supply Chain Delays

3. Do my sales and customer service teams have the information they need?

Your team should be able to see inventory levels quickly. They should know what is in stock, where it is stored, what is coming soon, and how fast it can reach the customer.

Conclusion

ERP inventory management helps businesses track, manage, and optimize their stock efficiently. By using ERP systems, companies can improve accuracy, reduce costs, prevent stockouts, and make better decisions. Features like real-time tracking, cycle counting, ABC analysis, and vendor collaboration ensure smooth operations and higher customer satisfaction. Implementing best practices and leveraging ERP technology allows businesses to stay competitive and grow profitably.