Enterprise Resource Planning (ERP) systems are excellent for improving efficiency right across your organization. From collecting and analyzing data to processing orders and managing finances. While warehouse management systems (WMS) play an important role in controlling stock and warehouse operations.
Both, however, have their limitations when it comes to specialist functionality, such as automated document signing, online payments or inventory optimization. This is where ERP add-on software plays a major role, as it can significantly enhance your business system’s functionality. And because most ERP add-ons are cloud-based, they are easy to implement, so you can begin to see the benefits straight away.
In this post we’re going to focus on the benefits of inventory optimization ERP add-on software in terms of the cost and resource savings it can bring to your business. Inventory optimization is the art of balancing inventory investment against ensuring high levels of fulfillment and stock availability. It allows you to automate your inventory planning and replenishment activities and optimize your stock levels to make each stage of your supply chain more cost-efficient. Read our blog post ‘what is inventory optimization’ for more info.
There are many warning signs that you need to automate your demand and inventory planning activities, such as experiencing a high number of stockouts, holding too much excess stock or using spreadsheets to carry out replenishment calculations. If you currently experience any of these issues, read on and find out how an ERP add-on can help…
Using spreadsheets to calculate your inventory needs and inputting this data back into your ERP is no fun. You can waste a lot of time working out what, when and how much stock to replenish. Plus, manually entered data is prone to errors and, as your business grows and the number of SKUs you manage increases, you’ll find that spreadsheets slow down and calculations get more complicated.
Using an ERP inventory management add-on will save time and resources by automating demand forecasting, stock planning and replenishment calculations – and feeding this data back into your ERP.
With stock reordering amounts worked out for you, you can free up time for more strategic decision making and planning.
In addition, automating your stock management calculations will ensure they’re always based on the latest demand and stock level data without the need for constant manual updates.
Many ERP systems are great at inventory control: ordering items, updating stock levels and raising purchase orders. However, they often lack the necessary analytical tools to recommend what and how much stock you should actually carry.
If you consider your current stock levels, can you be sure you have availability to meet customer demand? And how do you know you haven’t invested too much capital in goods just sitting on warehouse shelves?
Optimizing your stock levels can lead to increased profitability. If you can lower your inventory levels and improve inventory turnover, you’ll free up working capital (and opportunity costs) and reduce your carrying costs. But you don’t want to do so at the expense of causing stockouts. So the key is to prioritize the SKUs you hold based on their demand and their cost to your business.
ERP add-on software, such as EazyStock, will classify each SKU in your warehouse and recommend its ideal stock level so you can meet fulfillment targets without holding surplus stock.
Businesses with more than one warehouse can take stock optimization to the next level by optimizing inventory levels across all locations. For example, if demand for wool sweaters is high in one region, but low in others, then it makes sense to move the sweaters to the warehouse serving the ‘high demand’ area. This prevents surplus stock adding up in the other locations. It also lessens the reliance on external supplier networks and frees-up working capital.
Many ERP inventory management modules will use basic rolling average calculations to forecast demand. Often these demand forecasting methods cannot take seasonality or trends into account. And if you fail to spot upcoming sales opportunities, you may not have adequate stock to capitalize on customer demand.
By using statistical demand forecasting techniques (provided by inventory optimization software) you can improve the accuracy of your forecasts and plan for demand peaks. EazyStock is designed to recognize both seasonality and trend patterns, adjusting forecasts on a daily basis, which in turn updates your replenishment recommendations. As a consequence, you’ll always be able to make the most of demand surges and prevent costly stockouts and backorders.
Accurate demand forecasting will also stop a build-up of surplus stock. By tracking the demand of every inventory item in your portfolio, EazyStock calculates their current position in their product life cycle. The risk of excess and obsolete stock is highest as products leave the maturity stage and hit decline. EazyStock will spot these demand changes and adjust reordering parameters accordingly, thus reducing the risk of costly excess and obsolete stock.
The bullwhip effect is when a small fluctuation in demand at the top of the supply chain has an augmented effect on the demand forecasts further down. For example, if a bike shop sells more of a specific SKU than normal, it may increase its demand forecast and place a larger order from its regional distribution center (RDC). The RDC may then increase its demand forecast based on the retailer’s new order quantity, not the actual demand. The central warehouse may then do the same, based on the RDC’s new forecast. The result is over-inflated demand forecasts and surpluses in stock at each stage of the supply chain. Like the cracking of a whip, the increase in the demand starts small but grows down the line.
EazyStock stops this happening by producing forecasts based on actual point of sale data. The scenario of over-inflated stock levels at each stage of the supply chain is removed and this prevents money being tied up in unnecessary stock.
Many suppliers place contractual constraints around order quantities which can inhibit cost-effective purchasing. Automated stock replenishment software can help by taking these factors into consideration when recommending your daily replenishment needs. For example, if you have a minimum order quantity (by cost, weight or volume) to hit or simply want to fill up a shipping container, EazyStock will identify the items that are most cost-effective to add to the order based on upcoming demand requirements.
Advanced ‘price break’ functionality can also help you determine whether ordering larger quantities at a lower ‘price per unit’ will offset the costs of carrying more inventory and the risk of it being surplus to demand.
The EazyStock ERP add-on offers businesses a wealth of cost-saving benefits. It’s not meant as a replacement for your ERP – on the contrary, it’s there to enhance existing inventory management software functionality. EazyStock is easy to set up and works in conjunction with your ERP, offering additional inventory optimization features that will save your business time and money. For more information call our team at (844) 416-5000 or contact us here to discuss your needs and how we can support.