ERP inventory management applications are used to shepherd finished goods inventory through the production cycle and are often tied into other functions, including shipping, logistics, orders, billing and, on a broader scale, warehouse management.
While inventory management can be a standalone application, typically the software is bundled into warehouse management or supply chain management systems. This ERP inventory management module is used by retail, distribution and manufacturing and tied into retail merchandising systems where users also manage pricing.
"You need to know what's on the shelves, what's in the warehouse, and how you re-order goods to manage the flow of goods throughout the operation," says Paul Hamerman, vice president of enterprise applications at Forrester Research. The goal is to get the inventory to turn over," Hamerman said. "You're not making any money if it's sitting in the warehouse."
The main inventory management functions involve receiving, storing and returning inventory. "You need to account for (inventory) when it's arrived, where you put it, how long it's been there, how it's been returned or how it's been put into a product," said Ray Wang, senior analyst at Altimeter Group.
Other key features in ERP inventory management modules are:
- Inventory control
- Build materials and kitting (putting components together as part of a kit for sale)
- Serial number tracking
- Bar code printing
- Valuation features to understand the dollar value of inventory on hand
- SKU management
The software provides a way to track things that are related to each other. "For a cell phone in a box, the module would tie all the inventory to the cell phone, starting with kitting, which includes build materials, status of kitting components, serial numbers and lot tracing, and extending to un-building the kits and putting things back if you get a recall on a part that needs to be replaced in the kit," said Wang.
Another feature of ERP inventory management is the ability to track and manage purchases in order to determine spend levels.
When companies are carrying lots of inventory, cash management becomes an important factor. "You need to make sure you're not deploying your capital inappropriately," said Wang.
"If all the batteries you ordered for a kit are missing, your production is delayed, but you don't want too much on hand, because you have to store it, which will also cost you," he said. "You need to know how long this inventory will be in the warehouse and when it will ship."
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About the author: Catherine LaCroix is a freelance writer based in Portland, Ore. She covers technology used in business, education and healthcare.