When it comes to inventory management, the goal for most companies is to achieve the sweet spot of maintaining the right amount of inventory — not so much that they tie up cash in overstock and not so little that they’re unable to meet customer demand. Because so many factors can impact inventory levels — supplier issues, customer demand, warehousing and logistics and financial considerations, to name a few — many companies invest in inventory management software that integrates with their other key enterprise systems. A cloud-based enterprise resource planning (ERP) solution with an inventory management module offers companies inventory-specific functionality along with built-in integration with other modules, such as supply chain management, financial management, customer relationship management and human resources.
What Is an Inventory Module?
An ERP solution automates various mission-critical financial and operational business processes across a company. This software can include a variety of modules configured within it, each specifically designed to support a particular department or function. An ERP inventory management module helps a company better manage its inventory and associated costs with the goal of having enough stock to satisfy customer demand without investing too much of its cash in excess inventory. The inventory management module is designed to store and analyze inventory data and automate related tasks. Because it’s part of the overall ERP solution, it can share data and insights with other modules in the system.
Key Takeaways
- An ERP inventory management module is used to manage and optimize inventory so that a company can maintain appropriate levels of stock without tying up unnecessary cash in excess inventory.
- The inventory management module should provide full visibility into all inventory across locations and sales channels.
- Key capabilities include inventory tracking and management, order management, supplier management and reporting and analytics.
- Investing in an inventory module offers a host of potential benefits, including improved financial performance and better customer experience.
Inventory Module Explained
An inventory management module provides a complete picture of a company’s inventory. It can be used to track and manage current inventory across all of a company’s locations as well as incoming stock, thanks to its integration with a supply chain management module within the same ERP system. Similarly, an inventory module can also ingest customer demand insights from sales transactions or customer relationship management (CRM) data to inform decisions around inventory turnover and purchasing. This single, real-time view into inventory across locations and sales channels can help a business ensure enough product availability to meet demand while also freeing up cash that might otherwise be tied up in excess inventory.
Inventory management modules provide a number of tools to streamline inventory management and optimize inventory levels. Purchasing managers can use an inventory management module to account for issues, such as fluctuation in demand, seasonality and supply chain or logistics disruptions, when making restocking decisions. Using demand-based replenishment, they can configure the software to dynamically manage item reorder points and maintain stock levels. The module can also generate tasks and alerts based on an analysis of relevant information, including historical sales data, average lead time and number of inventory days of supply. With increased visibility across multiple locations, companies can more effectively monitor stock levels and sell-through rates — the amount of inventory sold within a given period relative to the amount of inventory received within the same period — to optimize inventory availability.
And it’s not just those working in purchasing or inventory management roles who benefit from the insights and functionality that an ERP inventory management module can offer. Shipping and logistics managers, for example, can use the software to predefine order fulfillment rules so they don’t wind up creating multiple shipments for a single order. Sales associates, meanwhile, can prevent lost sales resulting from dreaded out-of-stock situations by logging into the system to hold, transfer or ship items directly to their customers.
Inventory Module Key Features
The inventory management module within an ERP system is designed to improve a company’s oversight of key inventory processes to better manage costs, product availability and productivity. The goal is inventory control: the ability of a business to maintain the stock necessary to fulfill anticipated orders from customers while keeping inventory costs at a minimum.
Good inventory control requires data from purchasing, shipping, warehousing, storing, receiving, customer service and more. Tracking all this data manually would be difficult for any business and analyzing the data in order to optimize inventory management would be almost impossible. That’s where the inventory management module of an ERP system delivers its value. A modern module offers a number of key features that facilitate greater inventory control. These include:
Inventory Tracking and Management
Using spreadsheets or pen and paper to track inventory is inefficient, error-prone and unsustainable. Yet, many companies still rely on this approach. The inability to track and trace products from supplier to customer order is one of the biggest hurdles to effective inventory management. An ERP inventory module can offer real-time visibility into inventory companywide, wherever it’s stored or managed — from warehouses, to logistics provider locations, to retail stores. Having one source of truth for inventory is essential, and an inventory management module brings together all the relevant information into a single, centralized location. An inventory management dashboard can help business managers visualize critical data, such as inventory counts and projected stock levels, and alert them to issues, including overstock situations or anticipated shortfalls.
Order Management
It takes a veritable village to fulfill a customer’s order. Multiple parties work behind the scenes — from sales pros and customer relationship managers to warehouse pickers and shipping partners — to make sure orders are fulfilled correctly and quickly. But given customers’ increasing demands for fast shipping, that’s no small task. Order management functionality within an inventory module can track and streamline the entire process, from the moment the customer places an order until the minute it arrives at their door. The inventory module digitizes the process, providing visibility into order acceptance, fulfillment, shipping, delivery and any post-sales service. The biggest challenges to efficient order management are inventory and fulfillment inaccuracies and cost control. Order management features within an inventory module can automate key tasks in this process and pull in important data along the way to address common issues. The module also monitors and analyzes order management key performance indicators (KPIs) to measure performance over time and uncover opportunities to improve the process.
Supplier Management
Inventory management converges with another important business process: supply chain management. Maintaining adequate inventory depends on getting the right shipments from suppliers at the right price at the right time. Any supplier glitch can have a profound impact on inventory levels and turnover. That quickly became evident during the COVID-19 pandemic, which is why more companies are looking to technology to better manage their supply chains today. In fact, 79% of respondents to McKinsey’s 2023 Supply Chain Pulse Survey said they’ve implemented dashboards for end-to-end supply chain visibility. This type of robust supplier management is a key feature of an ERP inventory management module. This functionality helps companies ensure timely deliveries by anticipating disruption, preventing stockouts, managing lead times, measuring supplier performance and maintaining supplier diversity and backup options to deal with potential issues.
Reporting and Analytics
Manual reporting and analytics within inventory management are time-consuming and prone to error. Worse yet, manual processes make it difficult for businesses to manage their inventory in a timely way, which can result in excess inventory and other costly situations. With the right inventory management module, companies have a host of reports and analytics capabilities at their fingertips. They can easily analyze data and produce reports on inventory KPIs, such as inventory performance and profitability, stock levels, inventory value, cost of goods sold, inventory forecasts and shipment trends. Such analytics and reporting facilitate better-informed decisions and improved performance. A company that finds its inventory values trending higher with the potential to increase overhead and reduce profitability, for example, will want to investigate which items might be contributing to the trend and explore new purchasing practices based on costs and turnover rates. Steady and healthy inventory profitability on a popular product, on the other hand, is a positive trend, indicating that a company should maintain its current price point and stock levels for the item.
Inventory Module Benefits
An inventory management module can better equip companies to overcome the most common inventory management challenges, including inaccurate data, inconsistent tracking, inefficient order management and supplier issues. Implementing an ERP system with a robust inventory module enables companies to track and manage their inventory, orders and sales down to the individual SKU level. This increased visibility, particularly when integrated with the other common operational and financial modules within an ERP system, provides a number of key benefits, including:
Lower Holding Costs
Keeping too many goods in stock — that is, more than customers are likely to order — comes at a price. Indeed, nearly half (48%) of logistics managers surveyed by CNBC in 2023 said warehouse costs were the biggest inflationary issue they faced in inventory management. Such holding costs, which include warehousing, insurance, labor, transportation, depreciation, inventory shrinkage and damaged, spoiled or obsolete inventory, eat up cash that could be used more strategically to boost the bottom line. Demand-based planning enabled by a modern inventory management module allows companies to optimize inventory based on relevant data so that they’re less likely to end up with warehouses packed with goods no one is buying.
Reduced Stock Obsolescence
Obsolete inventory is defined as any inventory a company can no longer sell or that has seen a reduction in value. A product can face obsolescence due to its natural shelf life, changing customer preferences or advances in technology, for example. Whatever the reason, obsolete inventory is a drag on agility and profitability in the same way overstocked warehouses are: They both tie up valuable cash in items the company is unable to sell. Greater visibility into inventory levels, along with better demand forecasting, can help avoid this problem. Companies that use an ERP inventory management module can easily keep an eye on inventory turnover ratios to identify products with lower turnover rates and proactively address stock obsolescence issues and the accumulation of unsellable inventory.
Fewer Stockouts
Having too few of an item is also a costly issue for companies. While less visible than piles of last year’s smartphones sitting in a warehouse or rotting apples in the back of a grocery store, stockouts can be just as damaging to sales and customer satisfaction and loyalty. Using an ERP inventory management module to closely track inventory levels, forecast demand and manage suppliers helps companies minimize stockouts.
Enhanced Order Processing Speed
The better a company’s inventory management, the more efficient its order processing is. Using an ERP inventory management module enables a company to track inventory in real time, fine-tune its replenishment processes in harmony with supply and demand and maintain ideal inventory levels. As a result, the company can more quickly and effectively process, fulfill and ship orders.
Accurate Forecasting
Inventory modules with demand-based planning capabilities empower companies to make purchasing decisions that align with predicted customer demand. The system can analyze historical demand, sales forecasts, expected seasonal changes and other factors to help determine the right amount of stock to maintain. Inventory management modules also offer inventory forecasting capabilities to predict expected inventory levels for a given period based on data, such as historical sales trends, average lead times, customer demand and recommended safety stock.
Better Order Accuracy
At the far end of the inventory management process is order fulfillment. Here, order accuracy is an indication of how efficient and reliable a company is in picking, packing and shipping the products it has in stock to its customers. Order accuracy is an important metric, impacting not only overall costs but also customer satisfaction. Human error is the main cause of order accuracy issues, so when companies digitize, streamline and automate their inventory and order management processes using an inventory management module, they’re more likely to improve their order accuracy rates.
Faster Delivery
One of the biggest factors impacting the ability of companies to fulfill customer orders and deliver them quickly is the availability of inventory. Therefore, when companies are better able to track and manage their stock, they can increase delivery speed. ERP inventory management modules enable companies to track inventory across channels and locations in real time so they can more quickly fulfill customer orders and avoid stockouts, misplaced items and other inventory issues that slow delivery times.
Increased Profitability
The companywide visibility into inventory that an ERP’s inventory management module provides not only improves efficiency and customer satisfaction, but also positively impacts the bottom line. The better a company can manage its inventory, the lower its costs of goods sold, which, in turn, increases its margins.
Cloud-Based ERP and the Inventory Module
The benefits of an inventory management module within an ERP system for both a company and its customers are broad and impactful. Adopting a cloud-based ERP system inventory module offers additional upsides for inventory management. Among them are:
Remote Access to Inventory Data
Cloud-based ERP essentially eliminates any physical restrictions on inventory management. Migrating to a cloud-based system provides visibility into inventory companywide without any investment in additional technology infrastructure. With real-time connectivity, employees can access the inventory management module from anywhere to manage multiple warehouses, track inventory levels, monitor sales, perform order management and more. The resulting data and insights contribute to better inventory management decisions in the moment.
Real-Time Updates and Monitoring
Managing inventory by spreadsheet in a siloed fashion creates all sorts of issues, including inaccuracies and lag time that make it difficult to track and manage inventory. The data captured by a cloud-based ERP system, on the other hand, is updated in real time, which increases both the efficiency and efficacy of inventory management. The inventory management module gives users across the business visibility into shared sales, inventory and order information with instant updates so they can confidently make decisions based on accurate information and insight.
Scalability
On-premises ERP and inventory modules require a company to invest in technology infrastructure and management. As the company and its needs grow or contract, those infrastructure needs will change accordingly, potentially impacting the technology investment. Cloud-based ERP and inventory management modules, on the other hand, are hosted by the software provider and can scale up or down as necessary without the need for the business itself to make infrastructure changes or investments. Cloud ERP vendors can reallocate resources as needed to support changes in company size or inventory management requirements.
Customization of Inventory Processes
Although a cloud ERP provider hosts and maintains ERP software and inventory modules for many customers, leading providers understand that each client has its own specific requirements when it comes to inventory management. Therefore, they offer the ability to customize capabilities and configure invoices, in many cases with a no-code approach that doesn’t require significant technical expertise.
Seamless Integration with Other Business Systems
One of the biggest benefits of using an inventory management module within an ERP system is its built-in integration with other modules in the same system. Unlike stand-alone inventory management software, a modern ERP inventory management module integrates seamlessly with sales, accounting, payroll, shipping, logistics and more — all in the cloud. This is particularly valuable because inventory management relies on and impacts so many other operational and financial business processes.
API Functionalities for Extended Connectivity
Users of an inventory management module within a cloud-based ERP system don’t have to worry about integration with other enterprise business systems within the same platform. However, they may wish to enable their inventory management module to communicate with other non-ERP systems and exchange data in a standardized format. A cloud ERP provider can offer a set of protocols, routines and tools, referred to as an application programming interface (API), to enable that extended connectivity with other services, such as an ecommerce platform, or to allow users to create custom reports or dashboards within the ERP system.
Advanced Analytics for Inventory Optimization
Manual analysis of inventory data can only get you so far. Without access to continually updated data and advanced analytics, business leaders must rely on intuition, experience and basic calculations to make decisions. It’s an error-prone approach that’s difficult to scale as a business grows. The advanced data analytics capabilities within a cloud-based ERP inventory management module (supported by the provider’s high-throughput computing infrastructure) enable more robust inventory management and optimization by providing insight into accurate and up-to-date inventory levels, sales trends, customer demand, supplier performance and more. A cloud-based ERP module has built-in reporting and analytics capabilities that companies can use to achieve the right balance between meeting market demand and minimizing inventory costs.
Forecasting and Demand Planning
In today’s market, marked by continually evolving customer demands and frequent supply chain disruptions, a cloud-based ERP inventory module can offer advanced forecasting and demand-planning capabilities to help companies stay ahead of unexpected shifts that could impact inventory decisions. Accurate forecasts built on advanced analysis of data from both inside and outside the company — such as current inventory levels, outstanding purchase orders, expected demand and historical and current sales trends — empower business leaders to anticipate and respond to changing market conditions more effectively and manage their inventory accordingly. Some inventory modules integrate machine learning to automate inventory and demand forecasting and improve projections over time.
Minimize Stockouts and Excess Inventory with NetSuite Inventory Management
Effective and efficient inventory management is table stakes in today’s dynamic market. Companies that want to get ahead of ongoing shifts in supply and demand will see greater returns by investing in cloud-based ERP with an inventory management module.
NetSuite Inventory Management provides a single, real-time view of inventory levels, orders and sales throughout the inventory life cycle. This visibility across locations enables businesses to proactively address inventory issues, including excess or slow-moving stock, and optimize inventory for maximum effectiveness and profitability. Built-in reporting and analytics capabilities make insight generation and sharing easy. In addition, seamless integration with other ERP modules, such as financial management, supply chain management, CRM and sales, keeps everyone on the same page. The end result is a more streamlined and effective inventory management function that avoids overstocking or stockouts, as well as improves customer service and financial performance.
Managing the many moving parts that impact inventory decision-making is essential to maximizing efficiency, profitability and customer satisfaction. But it requires fit-for-purpose tools. An ERP system’s inventory management module is designed to help companies track and analyze the multiple factors that impact purchasing and inventory management and produce reports and analysis to drive more informed, proactive decision-making. The module provides the real-time, companywide view into inventory that’s required to make the tough calls necessary to ensure product availability without overstocking and exceed customer expectations while maintaining profitable margins.
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Inventory Module FAQs
What is the purpose of an inventory module?
The purpose of an inventory module within an enterprise resource planning (ERP) system is to provide the data, reporting and analytics necessary to optimize inventory levels and ensure enough product availability to meet demand while controlling costs.
What is an inventory module in ERP?
An inventory module is an application within a larger enterprise resource planning (ERP) system dedicated to inventory management. The module is integrated with the ERP system’s central database so there’s a single source of accurate company data. An inventory module provides capabilities to support a company’s management of its inventory — all the goods and materials it keeps in stock for the goal of producing or selling a product.
Is inventory part of the ERP module?
An enterprise resource planning (ERP) system can be configured with different modules, or components, that address the needs of a specific function necessary to run the business day-to-day. These may include modules for financial management, human resources management or supply chain management, for example. Inventory management is a module designed to help a company manage and optimize its inventory and related processes, such as supplier management or order management. The inventory management module may be offered as part of an ERP system or as an add-on capability.
What are the four types of inventory components?
Inventory refers to any goods or
materials a company keeps on hand to either
sell directly to a customer or to manufacture products. Four main types of inventory are:
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Raw materials are the base materials a company uses to produce or finish products, such as the steel used to manufacture a car.
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Components are also used to create a finished product, but, unlike raw materials, they have gone through some level of production and can be recognized as a product, such as a lug nut used to assemble a car.
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Work-in-progress (WIP) are items in some stage of production but not yet ready for sale, such as a car’s chassis.
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Finished goods are ready-to-sell products used to fulfill customer orders, such as a fully assembled car.